Market concentration, credit institutions and the macroeconomy
Chapter one is a brief discussion of a few methodological premises. The second chapter is meant to show (by means of a theoretical analysis) the effective macroeconomic relevance of oligopsony in the market for credit. This is done by using two models. In the first (simplified) model - where the behaviour of the supply function of bank credit to industrial firms is captured by a "Cobb-Douglas" reduced form - an exogenous decrease in the market power of the industrial firms on the credit market increases the effectiveness of monetary policy. In the second model, where the banking sector behaves consistently with the portfolio allocation theory, the results are weakened: it is still true that, apart from extreme cases, reductions in the market power of industrial firms in the credit markets increase the macroeconomic level of investment and affect the monetary policy multiplier, but the sign of the latter effect becomes ambiguous and depends on the analytical forms of the behavioural functions. Both models, however, show that modifications of the market structure in the banking sector have, in general, macroeconomic effects. The third chapter suggests an interpretation of the phenomenon of “securitization" on the basis of Williamson's  contractual framework. It is pointed out that in securitized financial systems substitutability between securities and intermediated credit is an empirically relevant phenomenon that makes the demand for bank credit to industry more unstable than the supply. For this purpose, a comparative econometric analysis has been performed with British and German data, because the two countries had (apart from the phenomenon of securitization) many similarities in their regulatory systems, as well as in the degree of concentration of their banking sectors and in the magnitude of the respective economies, at least until German Unification. The analytical form of the bank credit supply function is based on the "credit view". This specific aspect of the behaviour of banks is analyzed in Chapter 4, which contains an empirical analysis (performed with Italian data) of the free liquidity ratio for commercial banks, interpreted on the basis of the recent literature on investment decisions under conditions of investments' irreversibility and uncertainty. Chapters 5 and 6 examine the interactions between industrial firms and financial intermediaries in a "microeconomic" perspective. The focus is on the investment decision, and one of the main concerns is to perform a theoretical and empirical analysis on the connections between risk, cost of capital and investment decisions. Chapter 5 contains an empirical analysis of the firms' investment decision based on a theoretical model where the decisions concerning investment and the firms' financial structure are taken simultaneously. The results are not conclusive, in part because of the complexity of the causal links among market structure, investment and financing decisions suggested by various contributions in finance as well as in industrial economics. The study of such causal links is precisely the concern of Chapter 6, which contains an analysis of the implications of a few alternative hypotheses (based on precise results of the industrial economics literature) on the link existing between the cost of capital, the market structure and the profit margins.