We develop a multimarket spatial competition model in which large banks compete with small banks for transparent and opaque borrowers. Opaque borrower lending is influenced by a spillover from transparent borrower markets that depends on the structure of the banking market and is transmitted by banks’ risk‐bearing capacities. Consistent with diverse empirical findings, the structure of the banking market determines whether competition improves credit access (small bank dominated markets) or reduces bank lending (large bank dominated markets). In sufficiently heterogeneous (homogeneous) banking markets, a U‐shaped (inverse U‐shaped) relationship between credit access and bank competition applies.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.