Anticompetitive Financial Contracting: The Design of Financial Claims

  • Author(s): Giacinta Cestone, Lucy White
  • Published: Sep 11, 2003
  • Pages: 2109-2142
  • DOI: 10.1111/1540-6261.00599


This paper presents the first model where entry deterrence takes place through financial rather than product‐market channels. In existing models, a firm's choice of financial instruments deters entry by affecting product market behavior; here entry deterrence occurs by affecting the credit market behavior of investors towards entrant firms. We find that to deter entry, the claims held on incumbent firms should be sufficiently risky, that is, equity. This contrasts with the standard Brander and Lewis (1986) result that debt deters entry. This effect is more marked the less competitive the credit market is—so more credit market competition spurs more product market competition.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Members' Login


Members' Options

Site Footer

View Mobile Version