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Information, Nonexcludability, and Financial Market Structure

Bharat N. Anand and Alexander Galetovic
The Journal of Business
Vol. 73, No. 3 (July 2000), pp. 357-402
DOI: 10.1086/209647
Stable URL:
Page Count: 46
Subjects: Business Finance
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Information, Nonexcludability, and Financial Market Structure
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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.