Summary. In this paper, we analyze the interaction between an incumbent's financial contract with a bank and its product market decisions in the face of a threat of entry, in a dynamic model with asymmetric information. The main results of the paper are: there exists a separating equilibrium with no limit pricing; the low-cost incumbent repays more to the bank in the first period due to the threat of entry; and there are parameter values for which the bank makes more profits with the threat of entry than without.
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Received: July 19, 2002; revised version: December 4, 2002
Correspondence to: N. Jain
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Jain, N., Jeitschko, T. & Mirman, L. Financial intermediation and entry-deterrence. Econ Theory 22, 793–815 (2003). https://doi.org/10.1007/s00199-002-0351-2
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DOI: https://doi.org/10.1007/s00199-002-0351-2