Softening Competition by Inducing Switching in Credit Markets

26 Pages Posted: 25 Apr 2004

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Jan Bouckaert

University of Antwerp - Department of Economics

Abstract

We show that competing banks relax overall competition by inducing borrowers to switch lenders. We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclosing borrower information. By doing this, they invite rivals to poach their first-period market. Disclosure of borrower information increases the rival's second-period profits. This dampens competition for serving the first-period market.

Suggested Citation

Degryse, Hans and Bouckaert, Jan, Softening Competition by Inducing Switching in Credit Markets. Journal of Industrial Economics, Vol. 52, pp. 27-52, March 2004. Available at SSRN: https://ssrn.com/abstract=519219

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jan Bouckaert (Contact Author)

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium
+32 3 220 4055 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
29
Abstract Views
930
PlumX Metrics