Imperfect Competition and Costly Screening in the Credit Market under Conditions of Asymmetric Information

Koji Kubo

No 15, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This article provides an analysis of how banks determine levels of information production when they are in imperfect competition and there is a condition of information asymmetry between borrowers and banks. Specifically, the study concentrates on information production activities of banks in duopoly where they simultaneously determine intensity of pre-loan screening as well as interest rates. The preliminary model of this paper illustrates that due to strategic complementarities between banks, banking competition can result in inferior equilibrium out of multiple equilibria and insufficient information production. Policymakers must take into account the possible adverse effects of competition-enhancing policies on information production activities.

Keywords: Banking; Imperfect competition; Information production; Banks; Credit; 銀行; 信用 (search for similar items in EconPapers)
JEL-codes: D82 G21 (search for similar items in EconPapers)
Date: 2004-11-01
New Economics Papers: this item is included in nep-ban, nep-com and nep-mic
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 15. 2004-11-01

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