Borrowing from a Bigtech Platform
93 Pages Posted: 21 Sep 2022 Last revised: 30 Nov 2023
Date Written: August 31, 2022
Abstract
We model competition between banks and a bigtech platform that lend to a merchant with private information and subject to moral hazard. By controlling access to a valuable marketplace for the merchant, the platform enforces partial loan repayments, thus alleviating financing frictions, reducing the risk of strategic default, and contributing to welfare positively. Credit markets become partially segmented, with the platform targeting merchants of low and medium perceived credit quality. However, conditional on observables, the platform lends to better borrowers than banks because bad borrowers self-select into bank loans to avoid the platform's enforcement, causing negative welfare effects in equilibrium.
Keywords: Bigtech, platform, enforcement, adverse selection, moral hazard, advantageous screening, welfare, credit rationing
JEL Classification: G21, G23, C72, D82
Suggested Citation: Suggested Citation