Credit rationing and firms in oligopoly
Credit rationing and firms in oligopoly
This paper develops a theory of the firm, and equilibrium credit rationing mechanisms in oligopoly with R&D-product market competition. Credit rationing arises from a hold-up problem between wealth-constrained entrepreneurs and external investors. Underinvestment occurs if entrepreneurial wealth constraint is binding, even though the equilibrium corporate governance structure addresses the hold-up problem optimally. In a symmetric equilibrium outcome all firms face equitable credit-size rationing. In contrast the asymmetric equilibrium outcome sees some firms (the 'preys') denied external credits entirely while the others (the 'predators') receiving more favorable finances, which turns out to increase market concentration and overall R&D investments.
University of Southampton
Tong, Jian
8109179b-ff1d-483e-9ee0-bf3f96cda71b
2005
Tong, Jian
8109179b-ff1d-483e-9ee0-bf3f96cda71b
Tong, Jian
(2005)
Credit rationing and firms in oligopoly
(Discussion Papers in Economics and Econometrics, 505)
Southampton.
University of Southampton
37pp.
Record type:
Monograph
(Discussion Paper)
Abstract
This paper develops a theory of the firm, and equilibrium credit rationing mechanisms in oligopoly with R&D-product market competition. Credit rationing arises from a hold-up problem between wealth-constrained entrepreneurs and external investors. Underinvestment occurs if entrepreneurial wealth constraint is binding, even though the equilibrium corporate governance structure addresses the hold-up problem optimally. In a symmetric equilibrium outcome all firms face equitable credit-size rationing. In contrast the asymmetric equilibrium outcome sees some firms (the 'preys') denied external credits entirely while the others (the 'predators') receiving more favorable finances, which turns out to increase market concentration and overall R&D investments.
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Published date: 2005
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Local EPrints ID: 35086
URI: http://eprints.soton.ac.uk/id/eprint/35086
ISSN: 0966-4246
PURE UUID: 89b44230-14be-4c48-8296-6f6f959e4e17
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Date deposited: 18 May 2006
Last modified: 16 Mar 2024 03:25
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