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Author: Robert B. H. Hauswald Publisher: ISBN: Category : Languages : en Pages :
Book Description
We investigate the interaction between banks' use of information acquisition as a strategic tool and their role in promoting the efficiency of credit markets when a bank's ability to gather information varies with its distance to the borrower. We show that banks acquire proprietary information both to soften lending competition and to extend their market share. As competition increases, investments in information acquisition fall, leading to lower interest rates but also to less efficient lending decisions. Consistent with the recent wave of bank acquisitions, we also find that merging for informational reasons with a competitor is an optimal response to industry consolidation.
Author: Robert B. H. Hauswald Publisher: ISBN: Category : Languages : en Pages :
Book Description
We investigate the interaction between banks' use of information acquisition as a strategic tool and their role in promoting the efficiency of credit markets when a bank's ability to gather information varies with its distance to the borrower. We show that banks acquire proprietary information both to soften lending competition and to extend their market share. As competition increases, investments in information acquisition fall, leading to lower interest rates but also to less efficient lending decisions. Consistent with the recent wave of bank acquisitions, we also find that merging for informational reasons with a competitor is an optimal response to industry consolidation.
Author: Robert Marquez Publisher: ISBN: Category : Languages : en Pages : 36
Book Description
Regulatory changes and technological advances have profoundly affected the competitive landscape of credit markets. In this paper, we investigate how intermediaries alter their information acquisition strategies in response to increased competition. We specify a model where the severity of asymmetric information between banks and borrowers increases with their informational distance. As the number of active banks grows, investments in information acquisition initially fall with returns to informed intermediation. However, when a critical investment threshold is reached, further entry leads to specialization. Intermediaries optimally refocus informational resources in their core markets by retrenching from peripheral segments to fend off competitive threats to their captive customer base. The incentive to concentrate informational resources increases in the degree of adverse selection in the market.
Author: Priyodorshi Banerjee Publisher: ISBN: Category : Languages : en Pages : 39
Book Description
Investment in information acquisition can be used strategically by banks as a commitment device to augment market power. A static two-period economy with informationally heterogeneous banks is analysed. Information acquisition limits asymmetries of information and competitors' rents ex post. If projects yield insufficient returns in the first period, competitors' ex ante break even constraints are tightened, and competition inhibited. Market power can thereby be substantially augmented, and monopoly rents obtained. Welfare is lower with information acquisition, while banks are better off. With more than two banks, information acquisition is characterised by strategic complementarities: hence, multiple equilibria may exist.
Author: Michael Troege Publisher: ISBN: Category : Languages : en Pages : 39
Book Description
The paper explores the strategic effects of creditworthiness tests in a banking duopoly. It is shown that, depending on the expected quality of the borrower, information acquisition can be a strategic substitute or a strategic complement. In equilibrium banks will acquire information of symmetric quality if they cannot observe the competitors's screening effort. However, if each bank observes its competitor's investment in information acquisition asymmetric equilibria arise, where one bank specializes in information acquisition. Welfare and the firm's profit are higher in the symmetric case.Key Words: Bank Competition, Relationship Banking, Screening, Auction Theory.
Author: Priyodorshi Banerjee Publisher: ISBN: Category : Languages : en Pages :
Book Description
This article studies information acquisition through investment in improved risk assessment technology in competitive credit markets. A technology has two attributes: its ability to screen in productive borrowers, and its ability to screen out unproductive borrowers. The two attributes have fundamentally different effects on acquisition incentives and the structure of equilibrium informational externalities between lenders. The article also studies how uncertainty associated with the quality of superior technology affects information acquisition incentives. Uncertainty influences information acquisition even with risk-neutral banks. Increased uncertainty may raise or dampen incentives, depending on whether uncertainty is, respectively, about screening out or screening in quality.
Author: Mr.Giovanni Dell'Ariccia Publisher: International Monetary Fund ISBN: 145195154X Category : Business & Economics Languages : en Pages : 32
Book Description
The paper analyzes the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. All lenders face uncertainty with regard to borrowers’ creditworthiness, but, in the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. These informational asymmetries are an important determinant of the industry structure and may represent a barrier to entry for new banks. The paper shows that, in contrast with traditional models of horizontal differentiation, the steady-state equilibrium is characterized by a finite number of banks even in the absence of fixed costs.
Author: Robert B. H. Hauswald
Author: Robert B. H. Hauswald
Author: Robert Marquez
Author: Michael Tröge
Author: Priyodorshi Banerjee
Author: Michael Troege
Author: Joao Manoel Pinho de Mello
Author: Priyodorshi Banerjee
Author: Christopher Sandmann
Author: Gerhard Clemenz
Author: Mr.Giovanni Dell'Ariccia