Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, May 1, 2013

Product market competition and collateralized debt

Posted by D. Daniel Sokol

Vittoria Cerasia (Milano-Bicocca University, Economics Department), Alessandro Fedele (Libera Universita di Bolzano) and Raffaele Miniaci (Universita degli Studi di Brescia) explain Product market competition and collateralized debt.

ABSTRACT: This paper presents a model where bank credit depends upon borrowers ’product market structure. We show that a larger number of competitors in the industry may increase credit availability by enhancing the resale value of the collateralized productive assets. We also study how this benfie…t of competition is affected by the existence of outsiders willing to bid for the collateralized productive assets of the insiders. Our model encompasses the standard case of Cournot competition either when the default probability goes to zero or when there are multiple outsiders bidding for the productive assets. We test the empirical implications of the theoretical analysis exploiting information on the access to …nance of small and medium Italian fi…rms and …find supportive evidence.

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