اطلاعات نامتقارن و ساختار صنعت بانکداری
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|18232||2001||24 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : European Economic Review, Volume 45, Issue 10, December 2001, Pages 1957–1980
We analyze the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. In the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. We show that these informational asymmetries are important determinants of the industry structure and of banks’ strategic behavior. Contrary to traditional models of horizontal differentiation, the steady-state equilibrium is characterized by a finite number of banks even in the absence of exogenous fixed costs. In addition, less concentrated industry structures may be associated with higher interest rates.
Asymmetric information is a defining characteristic of credit markets.1 Financial institutions offering credit to borrowers face uncertainty about their credit worthiness to the extent that they cannot observe some of the borrowers’ characteristics and actions. These informational asymmetries may lead to credit rationing and may invalidate other standard results of competitive markets. However, in the process of lending, banks gather some proprietary information about borrowers’ creditworthiness, so that over time they may partially resolve the problems associated with informational asymmetries. Furthermore, with such information banks acquire some degree of monopoly power over their clients and an advantage over their competitors. A substantial literature has addressed the issue of competition in banking, showing that standard industrial organization results generally may fail to hold under asymmetric information.2 However, little attention has been paid to the analysis of the relationship between information and market structure in the banking industry. This paper is an attempt to fill that gap. In a formal setting, this paper shows that asymmetric information and learning contribute to determine bank conduct and credit industry structure. More specifically, it shows that these factors limit the number of competitors a market can sustain in equilibrium, provide incumbents with an advantage over new lending institutions, and induce banks to compete more fiercely for market share. The intuition goes as follows. Information gathered through their lending activity enables banks to better evaluate borrowers with whom they have dealt in the past, relative to borrowers that are new and unknown to them. Then, as banks compete with each other, adverse selection generates an endogenous fixed cost that limits the number of competitors active on the market. For each bank, this adverse selection problem stems from its inability to discriminate between borrowers seeking financing for new untested projects and borrowers rejected by competing banks. However, the severity of this problem decreases with the bank's market share. It follows that market share endows a bank with valuable informational capital and that new lenders find entry difficult. In a recent paper, Dell’Ariccia et al. (1999) argued that adverse selection represents a barrier to entry in banking. They showed that, in a single-period Bertrand setting, asymmetric information leads to a result of ‘natural duopoly’ and blockaded entry. However, because of the static nature of the model and the particular form of competition, they could not account for different industry structures across countries and market segments, and could not examine the relationship between industry structure and interest rate.3 The present paper adds to their result in both those respects. First, it establishes a relationship between information and market concentration, and shows that to more severe informational asymmetries correspond more concentrated industry structures, helping to explain heterogenous patterns of entry across market segments. Second, it examines the interaction of information, market structure, and bank conduct, and shows that the relationship between concentration and interest rate may not be monotonic. As these issues cannot be analyzed properly in a static model, this paper also develops a new dynamic framework where banks make entry/exit and pricing decisions, taking fully into account the long-run consequences of their choices. This paper presents a multi-period model of spatial competition, where entry–exit decisions are endogenously determined. It shows that under asymmetric information and learning by lending, in equilibrium there is a finite number of competitors even in the absence of an exogenous fixed cost. Furthermore, the paper shows that the endogenous fixed cost generated by adverse selection is larger for potential entrants than for incumbent banks, and that this difference increases with the degree of asymmetric information among banks. Finally, it shows that asymmetric information and learning by lending provide banks with an incentive to charge low interest rates to compete for new borrowers. Thus, more asymmetric information may mean fewer but more aggressive competitor banks. As a result, less concentrated industry structures may be associated with higher interest rates. These findings are the main contribution of the paper and can be interpreted along two different lines. First, they add to the literature on financial intermediation by formally showing that different degrees of adverse selection correspond to different degrees of market concentration and that information structure, market structure, and bank conduct are closely interrelated. Second, they contrast with the outcome of traditional models of spatial competition, and represent a new result for the literature on horizontal differentiation.4 The findings in this paper are also relevant from a regulatory standpoint. One implicit prediction of the model is that any deregulation process aimed at increasing competition in the banking industry is more likely to induce entry on those segments of the market where asymmetric information is less important. As suggested by Vives (1991), the increase in competition will not be uniform. Different degrees of competition will prevail on different segments of the market, and the effects of financial deregulation will be different for different categories of borrowers. Evidence from the European Union confirms this view. Following the Single Market Act, retail banking markets have remained concentrated and dominated by domestic banks, while wholesale banking markets have experienced considerable entry through the expansion of banks’ cross-border activities (see Hoschka, 1993). This paper also offers a partial explanation for the merger activity in the banking sector. ‘Out of market’ mergers and acquisitions, in which a bank buys a lending institution operating in a different market, might represent a way to circumvent the informational barriers described above. The paper proceeds as follows. Section 2 describes the model. Section 3 discusses the implications of the model and concludes.
نتیجه گیری انگلیسی
In this section we discuss the main implications of our framework. We limit to the analysis of the banking industry. However, similar considerations may apply to other industries where asymmetric information is important, for example, the market for credit cards, insurance companies, or HMOs. Informational asymmetries are not the only element that limits the degree of competition in credit markets. Other technological, informational, and institutional factors contribute to reduce the number of competing lenders and to make the banking industry ‘not contestable’.29 Furthermore, the degree of contestability varies across countries and segments of the market, and regulatory reforms aimed at promoting competition, like the liberalization of cross-border banking activities in Europe, are likely to have an uneven effect. From this point of view, our model has two strong implications. First, entry will be more difficult in markets where the institutional framework allows incumbent banks to acquire pervasive information about their clients.30 Second, entry will be easier in those segments of the market where technological and structural factors make asymmetric information less important.31 As a result, different degrees of competition may prevail on different segments of the market, as borrowers may be characterized by different degrees of asymmetric information.32 From this perspective, this paper can be read as a model of specialization rather than entry. More precisely, the analysis in our model can be about entry and competition on specific segments of the loan market, rather than the total number of existing banks.33 In a modified model, where banks had to sustain a fixed cost in physical assets to serve multiple and distinguishable segments of a loan market, the relative degree of competition (the number of active banks) on each segment of the market would be determined by the relative degree of asymmetric information. In that context, all the existing banks would compete for those borrowers that could credibly signal their creditworthiness; while fewer banks would lend to borrowers characterized by relevant informational asymmetries.34 Berlin and Mester (1999) argue that access to rate inelastic funds (like demand and savings deposits), allows commercial banks to develop long-term lending relationships precluded to other financial intermediaries. To that extent, barriers to entry in the deposit market interact with informational barriers on loan markets, as it is mainly through relationship banking that lenders are able to gather private information about their clients. While the specification of a complete econometric model goes beyond the scope of this paper, the interpretation above provides an indication to derive testable implications from our theory. Indeed, in the wake of financial deregulation, the compression of banks’ profit margins should be more pronounced in segments of the market where informational asymmetries play a less important role. Then, for example, everything else equal, we would expect a larger compression of interest rate margins in the mortgage market than in the small business loan market. Admittedly, an empirical investigation of these effects would be complicated by the need to control for a number of other factors (i.e. costs, demand, institutional changes) that contribute to determine interest rate margins. We leave that task to future research. Even though we do not analyze mergers and acquisitions, our model offers some intuition for the recent wave of such activities that occurred both in the US and Europe. In particular, we provide a rationale for ‘out of market’ mergers and acquisitions.35 Banks entering new markets may circumvent informational barriers by buying a local institution, as these operations involve the appropriation of both physical and informational capital.36 Finally, we have to address the issue of information sharing that Pagano and Jappelli (1993) show emerging endogenously as a solution to asymmetric information problems. The effects of the introduction of information sharing into the analysis would be threefold. First, competition for borrowers that have proven to be creditworthy would increase. Second, competition for new borrowers would decrease, as market share would lose its information content. Third, informational barriers to entry would fall, leading to a more competitive banking industry. The incentive to share information would depend on the net result of these three effects on banks profits. In the context of our model, information sharing would lead to a perfectly competitive environment, and a zero profit solution. Hence, banks would never have an incentive to exchange information. In more complex models, where borrowers act strategically and where moral hazard problems may arise, information sharing may emerge as a market solution.37 However, that analysis goes beyond the scope of this paper.