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Finance and Competition

Authors


  • We are grateful to two anonymous referees as well as to the editor, Wouter den Haan, for a plethora of valuable comments and suggestions. We thank to Fabrice Collard for his suggestions and help and also Jeff Campbell, Gerd Muehlheusser and Sergio Rebelo for helpful comments.

Abstract

We investigate the role of financial constraints for product market competition in a general equilibrium model, where firms may differ in terms of own wealth and/or efficiency. We find that, in general, the amelioration of financial constraints increases competition (it lowers the Lerner index of markups) in financially dependent sectors even when other standard concentration indexes indicate otherwise. Our analysis implies that disruptions in financial markets – such as the recent financial crisis – may have adverse effects on competition in product markets, a cost that has not been identified before.

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