Softening Competition by Enhancing entry: An Example from the Banking Industry

J.M.C. Bouckaert, H.A. Degryse

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Abstract

We show that competing firms relax overall competition by lowering future barriers to entry.We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclose borrower information.By doing this, they invite rivals to enter their market.Disclosure of borrower information increases an entrant's second-period profits.This dampens competition for serving the first-period market.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages32
Volume2002-86
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-86

Keywords

  • competition
  • banking
  • access to market
  • information

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    Bouckaert, J. M. C., & Degryse, H. A. (2002). Softening Competition by Enhancing entry: An Example from the Banking Industry. (CentER Discussion Paper; Vol. 2002-86). Finance.