The paper studies an incentive contract in a monopolistic and duopolistic credit
market where borrowers are different in risk. One lender is in an advantaged position
with respect to the other due to past relations with the borrowers. The
features of the equilibrium contract are investigated. It is shown that the equilibrium
contract drastically changes between the monopolistic and the duopolistic
situations and are sensitive to other parameters. In some cases, the superior lender
strategically yields borrowers, especially the better ones to the opponent lender
