Abstract
We focus on the impact of Big Tech lending on innovation. We study an e-commerce platform’s incentive to enter the credit market and offer loans for vendors’ innovations. The platform earns from both its lending activity and fees collected on transactions in the marketplace. If the platform does not offer loans, it might find it convenient to charge a high fee that will appeal to non-innovators only, thereby stifling innovation. If the platform offers loans, it engages in a cross-subsidy raising the fee and lowering the loan rate. We identify conditions under which the platform finds it optimal to enter the credit market as the combination of interest rate and fee allows the platform to separate innovative and non-innovative vendors and price discriminate them. The platform may not lend if it faces higher funding cost or a better information advantage than the bank or if non-innovative vendors are opportunistic. Platform lending always harms non-innovative vendors and may benefit innovators.
The paper is joint with Leonardo Gambacorta (Bank for International Settlements) and Bruno M. Parigi, University of Padova
Location: Seminar Room & online
Local Organizer: Elias Carroni