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Information-Based Pricing in Specialized Lending

Author

Listed:
  • Kristian Blickle
  • Zhiguo He
  • Jing Huang
  • Cecilia Parlatore

Abstract

We study specialized lending in a credit market competition model with private information. Two banks, equipped with similar data processing systems, possess general signals regarding the borrowers quality; the specialized bank, has access to an additional specialized signal. We study equilibria in which both lenders use general signals to screen loan applications. Conditional on making an offer, the specialized lender prices loans based on its specialized signal. This private-information-based pricing helps explain why loans made by specialized lenders have lower interest rates (lower winning bids) and better ex-post performance (fewer non-performing loans), which we support with robust empirical evidence.

Suggested Citation

  • Kristian Blickle & Zhiguo He & Jing Huang & Cecilia Parlatore, 2024. "Information-Based Pricing in Specialized Lending," NBER Working Papers 32155, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32155
    Note: CF IO PR
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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