Abstract
I develop a model of screening with imperfect competition. The model has a unique equilibrium in pure strategies, which I characterise in closed form. It allows me to analyse a contractual externality and derive a sufficient statistic for it. I apply my model to credit markets and show that contrary to conventional wisdom, increasing capital requirements, increasing the Federal Reserve rate, or decreasing competition can increase lending. I provide an empirical application in the context of consumer credit and show that too many different maturities are offered due to the externality. The model parameters are identified by linear regression of prices on quantities controlling for contract market shares.
Invited by: Silvia Sarpietro