MARKET POWER AND BANKING COMPETITION ON THE CREDIT MARKET

Ion Lapteacru ()

Chapter 10 in Risk Management and Value:Valuation and Asset Pricing, 2008, pp 205-229 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis chapter presents a study of the banking competition on the credit market, taking into account the banks' market power and their probability of success. Initially, we study the banking behavior in the case of the simultaneous entry on the market and we find that the diminution of the probability of success and the raise of the number of banks reduce the credit interest rate. This is the effect of the improvement of the quality of credit portfolio and of the increase in the banking competition. Another result is that the huge difference among probabilities of success can imply the exit of the market by the banks with poor quality of credit portfolio. Then, in the case of sequential entry on the market, we analyze the role of the probability of success, i.e. quality of bank portfolio, on the gain of the market shares. Basing on Tabuchi and Thisse's (1995) paper, we show that the leader is always localizing in the center of the market, that is, where the number of clients is most important, but it can abandon the center if the follower improves considerably the quality of its credit portfolio.

Keywords: Risk; Value; Management; Derivatives (search for similar items in EconPapers)
Date: 2008
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