Can competition in the credit market be excessive?

We study how market power affects investment and welfare when banks choose between restricting loan sizes and monitoring, in order to alleviate an underlying moral hazard problem. The impact of market power on aggregate welfare is the result of two countervailing effects. An increase in banks' market power results in: (i) higher lending rates, which worsens the borrower's incentive problem and reduces investment by unmonitored firms, (ii) higher monitoring effort, which reduces the proportion of credit-constrained firms. Whenever the second effect dominates, it is optimal to provide banks with some degree of market power.market power, monitoring, loan size rationing, moral hazard

Some considerations about 1992

Partial financial support from CICYT Grants n. PB 86-013 and PB 0340 is gratefully acknowledged.Peer Reviewe

Cost differences and survival in declining industries. A case for 'picking winners'?

et al.In this paper, we examine the relationship between firms' cost structures and the order of exit from declining industries. We distinguish between two fundamental causes of demand decline, namely a shrinkage of the consumer base and a decrease in consumers' willingness to pay. We show that it is not necessarily best to be small and flexible - the order of exit in a market driven outcome depends on the manner in which demand shrinks. We find that from a welfare perspective, the order of exit determined by market forces is not necessarily desirable. However, simple rules for picking 'winners' based on current unit cost, profitability, or productive efficiency do not provide sound guidance for policy. © 1991.Financial support from CICYT No. PB 86-013 is gratefully acknowledged.Peer Reviewe

A selective review of the economics of standardization. Entry deterrence, technological progress and international competition

We provide a selective overview of the literature on standardization. We first summarize the essential mechanisms underlying the economics of product compatibility and in so doing we review the various frameworks that have been used. Then we survey existing work about the consequences of compatibility on entry deterrence and technological progress. We finally investigate some implications of the literature for trade policy in the presence of network externalities and suggest some directions for future research.We would like to thank the Spanish Ministry of Education for financial support under DGICYT grants PB90-0132 and PB92-01 138.Peer Reviewe

Market power and banking failures

We investigate whether more competition in the banking industry necessarily results in a higher probability of banking failures, as it is often suggested. In our model borrowers face a moral hazard problem, which induces banks to choose between costly monitoring and credit rationing. We show that investment decreases with the lending rate and increases with monitoring effort. Since incentives to monitor are enhanced by market power, the relationship between market structure and investment is ambiguous. In the presence of non-diversifiable risk and decreasing returns to scale, more investment implies higher failure rates. As a result, the relationship between market power and banking failures is ambiguous. © 2002 Elsevier Science B.V. All rights reserved.This research has been supported by TMR networks FMRXCT98- 0203 and FMRX-CT98-0222, and by the Spanish Ministry of Education through DGCYT grants PB95-0130 and PB98-0695.Peer Reviewe

Can competition in the credit market be excessive?

We study how market power affects investment and welfare when banks choose between restricting loan sizes and monitoring, in order to alleviate an underlying moral hazard problem. The impact of market power on aggregate welfare is the result of two countervailing effects. An increase in banks' market power results in: (i) higher lending rates, which worsens the borrower's incentive problem and reduces investment by unmonitored firms, (ii) higher monitoring effort, which reduces the proportion of credit-constrained firms. Whenever the second effect dominates, it is optimal to provide banks with some degree of market power

A selective review of the economics of standardization. Entry deterrence, technological progress and international competition

We provide a selective overview of the literature on standardization. We first summarize the essential mechanisms underlying the economics of product compatibility and in so doing we review the various frameworks that have been used. Then we survey existing work about the consequences of compatibility on entry deterrence and technological progress. We finally investigate some implications of the literature for trade policy in the presence of network externalities and suggest some directions for future research.We would like to thank the Spanish Ministry of Education for financial support under DGICYT grants PB90-0132 and PB92-01 138.Peer Reviewe

"Mix and match" : product compatibility without network externalities

"Revision of April 1987.