Asymmetric information acquisition in credit auctions

Michael Tröge

No FS IV 99-22, Discussion Papers, Research Unit: Market Dynamics from WZB Berlin Social Science Center

Abstract: The intensity of credit screening in a banking duopoly is endogenized under two different assumptions. In the first case each bank observes its competitior’s investment in information acquisition before making a credit offer. In the second case information acquisition and bidding in the credit market take place simultaneously. The paper shows that the first assumption leads to asymmetric situations where one bank specializes in information acquisition, whereas in the second case we have symmetric equilibria. Welfare and the firm’s profit are higher in the symmetric case. This means that anonymous banking markets are more competitive than markets where banks have good information about each others.

Date: 1999
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