How Do Capital Markets Influence Product Market Competition?

This article is the written version of the author's keynotepresentation to the inaugural International IndustrialOrganization Conference held in Boston on April 4–5, 2003.It summarizes selectively a literature on the interaction betweenthe capital and product markets at the nexus of industrialorganization and corporate finance, and develops two key insights.First, capital market constraints on an individual firm aredetermined at the level of the industry and depend on productmarket competition. Second, capital markets constrain the productstrategy of firms and thereby influence product market performance.