Essays on competition in banking

This thesis consists of three chapters of a theoretical nature, all related to the topic of competition in the financial sector. The first chapter studies how competition for talented workers induces banks to set variable wage schemes, and how these wage schemes can lead to excessive risk. The second chapter argues that non-exclusive investor-firm relations can lead to an excessive provision of liquidity. The third chapter studies an economy in which different investors all compete non-exclusively for investment in a long-term project subject to a stochastic liquidity demand. The result is that investment can only take place if an intermediary is present in this economy

Antitrust

This is a survey of the economic principles that underlie antitrust law and how those principles relate to competition policy. We address four core subject areas: market power, collusion, mergers between competitors, and monopolization. In each area, we select the most relevant portions of current economic knowledge and use that knowledge to critically assess central features of antitrust policy. Our objective is to foster the improvement of legal regimes and also to identify topics where further analytical and empirical exploration would be useful.

Trust and Trustworthiness in Imbalanced Markets

In this thesis, we use the methodology of experimental economics to investigate issues of trust and trustworthiness in procurement and the supply chain. First, we develop a procurement model in which both seller-side and buyer-side decisions are endogenous to the trading relationship. We investigate how a real-world contractual incentive mechanism, retainage, can be used to overcome the seller-side moral hazard problem. We find that retainage can improve trade efficiency but in-creases market prices and may deter participation. We offer managerial insights on how to design the retainage mechanism, conditional on levels of trust and trustworthiness. Second, we extend the procurement model to incorporate a contingent contract and show analytically that this contract can mitigate the seller-side moral hazard problem. We observe in a lab experiment that suppliers strategically adjust their bids with a contingent contract and that the contingent contract has unintended behavioural con-sequences, with buyers rewarding sellers less for the quality of works delivered. The results have managerial implications for the use of hierarchical elements in contracts. Third, we analyse theoretically and experimentally the horizontal effects of supply chain late payments. We show that if firms discount payment received after the standard term, then late payments feed into higher prices and reduced competition. Reneging on a standard payment term entails a penalty for the buyer set by a third-party. If this penalty is not set carefully, a welfare loss arises due to price externalities. We demonstrate how free-riding payment behaviours may emerge among financially weaker buyers in the firm population