Archive for July 23, 2015

BANKING. INTERNET LOANS: FASTER AND SAFER: The Two-Stage Globalization of Regulatory Competition

July 23, 2015

product’s marketContemporary theories of industrial organization seek to explain how a product’s market structure evolves through time to permit efficient firms to discipline or displace relatively less-efficient competitors. The force of these theories is particularly easy to grasp when we focus on hypothetical markets that meet a set of ideal conditions that Baumol, Panzar, and Willig (1986) call “perfect contestability.”

A market is perfectly contestable when entry and exit costs are each zero and incumbent firms exit quickly whenever they find themselves faced with negative profits. In perfectly contestable markets, low-cost firms readily displace high-cost firms and incumbent competitors are prevented from setting monopoly prices by the threat of hit-and-run entry by other equally-efficient firms.

This paper deploys an imperfectly contestable-markets perspective on market-structure change to discern two stages of financial deregulation in Asia and elsewhere. The first stage takes the form of de facto deregulation of entry barriers by market forces. The second stage consist of subsequent de jure ratification and regularization of market developments by the financial regulatory establishment.