Author:

Keywords:

information, costs, banking, choice, model, entry, trade, Social Sciences, Business, Finance, Economics, Business & Economics, INFORMATION, COSTS, CHOICE, ENTRY, 1401 Economic Theory, 1402 Applied Economics, 1403 Econometrics, 3801 Applied economics, 3803 Economic theory

Abstract:

We show that competing banks relax overall competition by inducing borrowers to switch lenders. We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclosing borrower information. By doing this, they invite rivals to poach their first-period market. Disclosure of borrower information increases the rival's second-period profits. This dampens competition for serving the first-period market.