Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129705
Authors: 
Bertsch, Christoph
Calcagno, Claudio
Le Quement, Mark
Year of Publication: 
2014
Series/Report no.: 
Sveriges Riksbank Working Paper Series 289
Abstract: 
Both the academic literature and the policy debate on systematic bailout guarantees and Government subsidies have ignored an important effect: in industries where firms may go out of business due to idiosyncratic shocks, Governments may increase the likelihood of (tacit) coordination if they set up schemes that rescue failing firms. In a repeated-game setting, we show that a systematic bailout regime increases the expected profits from coordination and simultaneously raises the probability that competitors will remain in business and will thus be able to "punish" firms that deviate from coordinated behaviour. These effects make tacit coordination easier to sustain and have a detrimental impact on welfare. While the key insight holds across any industry, we study this question with an application to the banking sector, in light of the recent financial crisis and the extensive use of bailout schemes.
Subjects: 
competition policy
systematic bailout guarantees
collusion
banking
State aid
JEL: 
D43
G21
K21
L41
Document Type: 
Working Paper

Files in This Item:
File
Size
624.05 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.