The Loan Contract: Mechanism of Financial Control

Rowena Pecchenino

Economic Journal, 1988, vol. 98, issue 389, 126-37

Abstract: In this paper, it is shown that an industry bank specializing in the financial needs of an indust ry can effect industry control in a variety of economic situations. S pecifically, a bank, through its loan contract, can set industry outp ut at the monopoly level and extract surplus from collusion if the fi rms in the industry cannot collude directly because of asymmetric inf ormation, signalling problems, and/or antitrust restrictions. Copyright 1988 by Royal Economic Society.

Date: 1988
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