Financial Contracts and Strategic customer Exclusion

Naoki Kojima ()

Economics and Finance Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: The paper studies an incentive contract in a monopolistic and duopolistic credit market where borrowers are di erent in risk. One lender is in an advantaged position with respect to the other due to past relations with the borrowers. The features of the equilibrium contract are investigated. It is shown that the equilibrium contract drastically changes between the monopolistic and the duopolistic situations and are sensitive to other parameters. In some cases, the superior lender strategically yields borrowers, especially the better ones to the opponent lender.

Pages: 27 pages
Date: 2004-05
New Economics Papers: this item is included in nep-fin and nep-reg
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