Finance and Competition

Dellas, Harris; Fernandes, Ana (February 2007). Finance and Competition (Discussion Papers 07-03). Bern: Department of Economics

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Financial constraints are often thought as representing a barrier to entry for new firms, thus potentially limiting competition in product markets. We investigate the relationship between finance and product market competition in the context of a general equilibrium, two-sector model. The analysis highlights the role played by firm heterogeneity as well as by the level and distribution of wealth. Financial development may lead to lower markups (and thus to more competitive markets) in financially dependent sectors, even when it reduces the number of firms and increases standard market concentration indexes. The analysis implies that incumbency is not a sufficient condition for determining opposition to financial liberalization. It also implies that, for a given level of imperfect financial development, poorer countries will tend to have less competitive product markets.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Dellas, Harris and Fernandes, Ana

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

05 Oct 2020 11:59

Last Modified:

15 Mar 2021 08:16

JEL Classification:

L1, E2

BORIS DOI:

10.7892/boris.145693

URI:

https://boris.unibe.ch/id/eprint/145693

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