The total cost of trading Belgian shares: Brussels versus London

international financial markets;shares;costs

The Impact of Competition on Bank Orientation and Specialization

How do banks react to increased interbank competition?Recent banking theory offers conflicting predictions about the impact of competition on bank orientation í L H WKH choice of relationship based versus transactional banking í DQG EDQN LQGXVWU\ specialization.We empirically investigate the impact of interbank competition on bank branch orientation and specialization.We employ a unique data set containing detailed information on bank-firm relationships and industry classification.We find that bank branches facing stiff local competition engage relatively more in relationship-based lending but specialize somewhat less in a particular industry.Our results illustrate that competition and relationships are not necessarily inimical.competition;banks;bank lending

Phonebanking

Banking;Market Structure;Game Theory

Opt In versus Opt Out: A Free-Entry Analysis of Privacy Policies

There is much debate on how the flow of information between firms should be organized, and whether existing privacy laws should be amended.We offer a welfare comparison of the three main current policies towards consumer privacy - anonymity, opt in, and opt out - within a two-period model of localized competition.We show that when consumers find it too costly to opt in or opt out, privacy policies shape firms' ability to collect and use customer information, and affect their pricing strategy and entry decision differently.The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection.Opt out is the socially preferred privacy policy while opt in socially underperforms anonymity.Consumers never opt out and choose to opt in only when its cost is sufficiently low.Only when opting in is cost-free do the opt-in and opt-out privacy policies coincide.privacy;price discrimination;monopolistic competition;welfare

Distance, Lending Relationships, and Competition

A recent string of theoretical papers has highlighted the importance of geographical distance in explaining loan rates for small firms.Lenders located in the vicinity of small firms face significantly lower transportation and monitoring costs, and hence wield considerable market power, if competing financiers are located relatively far from the borrowing firms.We study the effect on loan conditions of geographical distance between firms, the lending bank, and all other banks in the vicinity.For our study we employ detailed contract information from more than 15,000 bank loans to small firms comprising the entire loan portfolio of a large Belgian bank.We control for relevant relationship, loan contract, bank branch, firm, and regional characteristics.We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending.Loan rates decrease with the distance between the firm and the lending bank and similarly increase with the distance between the firm and competing banks.The effect of distance on the loan rate is statistically significant and economically relevant.Robust to changes in model specifications and variable definitions, the effect is seemingly not driven by the modest changes over time in lending technology that we infer.We deduce that transportation costs cause the spatial price discrimination we observe.prices;credit;banks;competition;bank lending

Softening Competition by Enhancing entry: An Example from the Banking Industry

We show that competing firms relax overall competition by lowering future barriers to entry.We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclose borrower information.By doing this, they invite rivals to enter their market.Disclosure of borrower information increases an entrant's second-period profits.This dampens competition for serving the first-period market.competition;banking;access to market;information