TY - JOUR
T1 - How does the allocation of credit select between boundedly rational firms?
AU - Saint-Paul, Gilles
PY - 2007/4
Y1 - 2007/4
N2 - I study how savers allocate funds between boundedly rational firms which follow simple pricing rules. Firms need cash to pay their inputs in advance, and savers-shareholders allocate cash between them so as to maximize their rate of return. When the rate of return on each firm is observed, there are multiple equilibria, and some degree of monopoly power is sustained. However, the economy gets close to the Walrasian equilibrium when the availability of funds goes to infinity. Multiple equilibria also arise when there are "entrants" with unobservable rates of return. In an equilibrium where entrants are not funded, savers invest in incumbents because those entrants which will divert customers from incumbents are likely to be excess underpricers.
AB - I study how savers allocate funds between boundedly rational firms which follow simple pricing rules. Firms need cash to pay their inputs in advance, and savers-shareholders allocate cash between them so as to maximize their rate of return. When the rate of return on each firm is observed, there are multiple equilibria, and some degree of monopoly power is sustained. However, the economy gets close to the Walrasian equilibrium when the availability of funds goes to infinity. Multiple equilibria also arise when there are "entrants" with unobservable rates of return. In an equilibrium where entrants are not funded, savers invest in incumbents because those entrants which will divert customers from incumbents are likely to be excess underpricers.
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U2 - 10.1162/jeea.2007.5.2-3.411
DO - 10.1162/jeea.2007.5.2-3.411
M3 - Article
AN - SCOPUS:36749088861
SN - 1542-4766
VL - 5
SP - 411
EP - 419
JO - Journal of the European Economic Association
JF - Journal of the European Economic Association
IS - 2-3
ER -