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Jeon, Doh-Shin
and Lovo, Stefano
(2011)
Reputation as an Entry Barrier in the Credit Rating Industry.
TSE Working Paper, n. 11-235, Toulouse
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Abstract
We study competition between an incumbent Credit Rating Agency (CRA) and a sequence
of entrant CRAs that are potentially more effective but whose ability in appraising default
risk is unproven when they enter the market. We show that free entry competition fails
to select the most competent CRA as long as two conditions are met. First, investors and
issuers trust the incumbent CRA to provide a sincere, although imperfect, assessment.
Second, CRAs cannot charge higher fees for low rating than for high rating. Then, a
rather incompetent CRA can dominate the market without concerns about entry. We
derive policy implications.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | 10 May 2011 |
| Place of Publication: | Toulouse |
| JEL Classification: | D82 - Asymmetric and Private Information G29 - Other L11 - Production, Pricing, and Market Structure; Size Distribution of Firms L13 - Oligopoly and Other Imperfect Markets L15 - Information and Product Quality; Standardization and Compatibility |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse 1 Capitole |
| Site: | UT1 |
| Date Deposited: | 18 Jan 2012 05:45 |
| Last Modified: | 02 Apr 2021 15:33 |
| OAI Identifier: | oai:tse-fr.eu:24582 |
| URI: | https://publications.ut-capitole.fr/id/eprint/983 |
