Informed lending as a deterrent to predation

Predatory practices have been rationalized by positing some information problem between entrant firms and their financiers. We argue that an effective way to deter product market predation is to obtain credit from an informed source, who can disentangle a firm’s expected profitability from its realized profits. Bank finance is often seen as a way of obtaining informed financing. We thus offer a rationale for choosing between bank financing and public debt financing based on its implications for competition in the product market.