BANK-FIRM RELATIONSHIP AS A STRATEGIC COMMITMENT IN A DUOPOLISTIC ENVIRONMENT |
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| Authors: | Ma Tay-Cheng |
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| Affiliation: | Correspondence: * Associate Professor, Department of Finance, National Kaohsiung University of Applied Sciences, Taiwan. E-mail: tcma{at}cc.kuas.edu.tw |
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| Abstract: | By using a three-stage game, this paper shows that an investmentin the banking sector may commit a duopolistic firm to a moreaggressive output stance. This aggressiveness is translatedby an outward shift in the firm's reaction function, thus increasingits own output and decreasing its rival's output. While it isindividually beneficial for a firm to invest in a banking business,both firms taken together in a duopoly industry are made worse-offby such an investment, because they produce too much. Firmsare caught in a financial version of the prisoner's dilemma. |
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