On financial frictions and firm's market power
Fecha
2023Versión
Acceso abierto / Sarbide irekia
Tipo
Artículo / Artikulua
Versión
Versión aceptada / Onetsi den bertsioa
Identificador del proyecto
AEI/Plan Estatal de Investigación Científica y Técnica y de Innovación 2021-2023/PID2021-127119NB-I00
Impacto
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10.1111/ecin.13146
Resumen
There are two opposing welfare effects of market power in a model with monopolistic competition, loan defaults and moral hazard. The loss of output produced if firms set a higher mark-up over marginal costs confronts with some gain due to higher expected profits and the reduction of defaults. Such tradeoff results in an optimal level of market power that decreases with the efficiency of liquidati ...
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There are two opposing welfare effects of market power in a model with monopolistic competition, loan defaults and moral hazard. The loss of output produced if firms set a higher mark-up over marginal costs confronts with some gain due to higher expected profits and the reduction of defaults. Such tradeoff results in an optimal level of market power that decreases with the efficiency of liquidation following default on a loan. If moral hazard is pervasive, credit rationing cuts down the default rates and mitigates the welfare cost of financial frictions. [--]
Materias
Credit rationing,
Loan defaults,
Market power
Editor
Wiley
Publicado en
Economic Inquiry 2023;1–24
Departamento
Universidad Pública de Navarra. Departamento de Economía /
Nafarroako Unibertsitate Publikoa. Ekonomia Saila
Versión del editor
Entidades Financiadoras
The authors thank Banco de España for financial support through the project. Política monetaria en economías con fricciones financieras y bancarias. Miguel Casares and Jose E. Galdon-Sanchez also acknowledge financial support from Spanish State Research Agency through project PID2021-127119NB-I00 and by “ERDF A way of making Europe”. Luca G. Deidda also acknowledges the financial support by the Italian Ministero dell’Università (Grant No. 20157NH5TP), Fondazione di Sardegna, Università di Sassari (Una tantum 2019), and RAS (Grant No. RASSR89213).