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Finance and Competition

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  • Harris Dellas
  • Ana Fernandes

Abstract

Financial constraints are often thought as representing a barrier to entry for new firms, thus potentially limiting competition in product markets. We investigate the relationship between finance and product market competition in the context of a general equilibrium, two-sector model. The analysis highlights the role played by firm heterogeneity as well as by the level and distribution of wealth. Financial development may lead to lower markups (and thus to more competitive markets) in financially dependent sectors, even when it reduces the number of firms and increases standard market concentration indexes. The analysis implies that incumbency is not a sufficient condition to oppose financial liberalization. It also implies that, for a given level of imperfect financial development, poorer countries will tend to have less competitive product markets.
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Suggested Citation

  • Harris Dellas & Ana Fernandes, 2014. "Finance and Competition," Economic Journal, Royal Economic Society, vol. 124(575), pages 269-288, March.
    • Handle: RePEc:wly:econjl:v:124:y:2014:i:575:p:269-288
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    File URL: http://hdl.handle.net/10.1111/ecoj.2014.124.issue-575
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    Cited by:

    1. Giorgio Calcagnini & Annalisa Ferrando & Germana Giombini, 2015. "Multiple market imperfections, firm profitability and investment," European Journal of Law and Economics, Springer, vol. 40(1), pages 95-120, August.
    2. Marjit, Sugata & Mukherjee, Arijit & Yang, Lei, 2014. "On the Sustainability of Product Market Collusion under Credit Market Imperfection," MPRA Paper 60832, University Library of Munich, Germany.
    3. Sugata Marjit & Arijit Mukherjee & Lei Yang, 2016. "Sustainabnility of Product Market Collusion under Credit Market Imperfections," CESifo Working Paper Series 6292, CESifo.

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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