Information Acquisition amd Market Power in Credit Markets

Priyodorshi Banerjee
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Priyodorshi Banerjee: Ohio State University

No 13, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: 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 analyzed. 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 characterized by strategic complementarities: hence, multiple equilibria may exist.

Keywords: credit markets; information acquisition; market power (search for similar items in EconPapers)
JEL-codes: D82 G21 L13 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-cfn
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