00-060
INFORMATION, NON-EXCLUDABILITY, AND FINANCIAL MARKET STRUCTURE
Bharat N. Anand and Alexander Galetovic
We study the determinants of market structure in financial
intermediation markets when property rights over information are weak. We show
that incentives to gather information to screen firms can be preserved in
decentralized markets with more than one intermediary. Local monopoly power is
sustained by an aggregate oligopolistic market structure, where intermediaries
voluntarily refrain from free-riding. We find that this market structure is
robust to entry, and does not change with market size. We apply our theory to
two markets--investment banking and venture capital--and use it to organize and
interpret the evidence.
Key words: Free riding, information gathering, intermediation
non-excludability.
JEL Classification: G20, L22.
C&S
43 pages
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