Browsing by Author "Gehrig, Thomas"

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  • Stenbacka, Rune; Gehrig, Thomas (Hanken School of Economics, 2003)
    3
    We show that the presence of sufficiently significant switching costs, which are increasing in the degree of product differentiation, generates an equilibrium configuration with maximal differentiation within the framework of a Hotelling model with linear transportation costs. The equilibrium with maximal differentiation offers a formalization of the idea that competing firms have noncooperative incentives to establish maximal switching cost barriers. The equilibrium incentives for commitments to high switching costs can be explained with poaching profits, which are increasing in the switching costs. In fact, ex-ante competition for market shares in period 1 is unable to eliminate these poaching profits.
  • Gehrig, Thomas; Stenbacka, Rune (Svenska handelshögskolan, 2000)
    Working Papers
    We show that information sharing among banks may serve as a collusive device. An informational sharing agreement is an a-priori commitment to reduce informational asymmetries between banks in future lending. Hence, information sharing tends to increase the intensity of competition in future periods and, thus, reduces the value of informational rents in current competition. We contribute to the existing literature by emphasizing that a reduction in informational rents will also reduce the intensity of competition in the current period, thereby reducing competitive pressure in current credit markets. We provide a large class of economic environments, where a ban on information sharing would be strictly welfare-enhancing.
  • Gehrig, Thomas; Stenbacka, Rune (Hanken School of Economics, 2002)
    5
    We analyse the institution of information sharing in a model of repeated banking competition. In the presence of switching costs we find that information sharing renders poaching more profitable in future rounds of competition, since the poaching activities can be targeted to creditworthy borrowers. Thus borrower poaching may occur even when it would not be profitable without information sharing. At the same time information sharing reduces relationship benefits, and competition for initial market shares is weakened. Overall we find that information sharing enhances equilibrium profits weakly in general and strictly in the presence of switching cost.
  • Gehrig, Thomas; Stenbacka, Rune (2002)
    1
    We show how introductory offers emerge endogenously under conditions of competition in markets with switching costs. In a standard Hotelling model we find the combination of switching costs and introductory discounts to reduce industry profits relative to industries without switching costs, in which introductory offers do not emerge. Thus, our analysis offers a formalized argument for the policy conclusion that the strategic use of introductory offers should be promoted, not banned, in environments where firms are able to discriminate across different vintages of customers.
  • Gehrig, Thomas; Stenbacka, Rune (2003)
    2
    We demonstrate how endogenous information acquisition by financiers creates investment cycles when competing financiers undertake their screening decisions in an uncoordinated way, thereby highlighting the role of intertemporal screening externalities induced by screening competition as a structural source of instability. We show that uncoordinated screening behavior of competing financiers may be not only the source of an important financial multiplier, but also an independent source of fluctuations inducing investment cycles. The screening cycle mechanism is robust to generalizations along many dimensions.
  • Gehrig, Thomas; Stenbacka, Rune (Svenska handelshögskolan, 2001)
    Working Papers
    We demonstrate how endogenous information acquisition in credit markets creates lending cycles when competing banks undertake their screening decisions in an uncoordinated way, thereby highlighting the role of intertemporal screening externalities induced by lending market competition as a structural source of instability. We show that uncoordinated screening behavior of competing banks may be not only the source of an important financial multiplier, but also an independent source of fluctuations inducing business cycles. The screening cycle mechanism is robust to generalizations along many dimensions such as the lending market structure, the lending rate determination and the imperfections in the screening technology.