Competition and Strategic Information Acquisition in Credit Markets
36 Pages Posted: 4 Mar 2002
There are 2 versions of this paper
Competition and Strategic Information Acquisition in Credit Markets
Competition and Strategic Information Acquisition in Credit Markets
Date Written: March 2002
Abstract
Regulatory changes and technological advances have profoundly affected the competitive landscape of credit markets. In this paper, we investigate how intermediaries alter their information acquisition strategies in response to increased competition. We specify a model where the severity of asymmetric information between banks and borrowers increases with their informational distance. As the number of active banks grows, investments in information acquisition initially fall with returns to informed intermediation. However, when a critical investment threshold is reached, further entry leads to specialization. Intermediaries optimally refocus informational resources in their core markets by retrenching from peripheral segments to fend off competitive threats to their captive customer base. The incentive to concentrate informational resources increases in the degree of adverse selection in the market.
Keywords: Banking, competition, information acquisition, specialization
JEL Classification: G21, L11, L14, D44
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Relationship Lending and Lines of Credit in Small Firm Finance
By Allen N. Berger and Gregory F. Udell
-
Lines of Credit and Relationship Lending in Small Firm Finance
By Allen N. Berger and Gregory F. Udell
-
Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms
-
Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms
-
Does Distance Still Matter? The Information Revolution in Small Business Lending
-
Does Distance Still Matter? The Information Revolution in Small Business Lending
-
By Allen N. Berger, Philip E. Strahan, ...
-
By Allen N. Berger, Nathan Miller, ...
-
By Allen N. Berger, Nathan Miller, ...
-
By Allen N. Berger and Gregory F. Udell