Intra-industry debt and tacit collusion
intra-industry debt, interbank lending, microeconomics of banking
This paper shows that a firm competes less vigorously when it holds debt issued by another, competing firm. Reciprocal holding of debt by two firms may signal a credible commitment to collusion between the firms. This result is robust to a dynamic game setting, where reciprocal holding of debt is shown to reduce the firms’ incentives to deviate from collusion. The message conveyed by these results is that intra-industry debt should raise concerns about tacit collusion. The results of this study are particularly relevant in the banking sector, where holding reciprocal debt is the norm, rather than the exception.
Colonescu, C. (2014). Intra-industry debt and tacit collusion. Journal of Finance and Bank Management, 2(2), 71-85. Retrieved from http://jfbmnet.com
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