Working Paper: CEPR ID: DP2911
Authors: Thomas Gehrig; Rune Stenbacka
Abstract: 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 emphasising 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.
Keywords: Collusion; Imperfectly Competitive Credit Markets; Information Sharing
JEL Codes: D82; G21; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| information sharing (O36) | reduced intensity of competition (L13) |
| reduced intensity of competition (L13) | increased credit risk (G21) |
| information sharing (O36) | increased credit risk (G21) |
| information sharing (O36) | reduced competitive pressure (L19) |
| reduced competitive pressure (L19) | increased overall profitability (L21) |
| information sharing (O36) | better competition in future lending stages (G21) |
| information sharing (O36) | diminished competition in initial funding stages (L26) |