Entry deterrence under financial intermediation with private information and hidden contracts |
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Authors: | Neelam Jain Thomas D Jeitschko Leonard J Mirman |
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Institution: | (1) Department of Economics, Northern Illinois University, IL 60115 DeKalb, USA;(2) Department of Economics, Michigan State University, MI 48824 East Lansing, USA;(3) Department of Economics, University of Virginia, VA 22903 Charlottesville, USA |
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Abstract: | We study how financial intermediation affects market entry when an incumbent monopolist enters into non-public, short-term
contracts for outside funds. Financial intermediation serves as a commitment device to avoid costly signalling, but at the
same time leads to strategic experimentation by the bank. Without public commitment to the financial contract, signal-jamming affects the bank's strategic experiment. Unlike the previous literature
on signalling and signal-jamming in entry deterrence in which entry is unaffected or its change indeterminate, the altered
strategic experiment has the effect of increasing the amount of entry to the market.
Received: 19 January 2004, Accepted: 18 May 2005
JEL Classification:
C73, D8, L1
We thank Markus Daniel, Spiros Bougheas, James Peck, Tony Creane, two anonymous referees, the associate editor and seminar
participants at the Wissenschaftszentrum Berlin, Emory, Ohio State, and Royal Holloway Universities and the Universities of
Wisconsin, Nottingham and East Anglia, as well as Matt Jackson for editorial assistance. |
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Keywords: | Strategic experimentation signal dampening signal jamming financial intermediation entry deterrence |
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