Research
How to model bank competition: the case for Cournot - Lattanzio, 2022
Abstract: When firms first choose their capacity and then compete à la Bertrand, the market equilibrium can correspond to the Cournot outcome (Kreps & Scheinkman, 1983) . I set out the conditions under which this Cournot-Bertrand equivalence extends to banks. I consider a general class of loan demand. Namely, I allow firm riskiness to be affected by the interest rate charged by the bank. I argue that such micro-foundations for Cournot competition in the loan market open new perspectives to the modelling of an elaborate, yet tractable, banking sector in macroeconomic models.
Draft available upon request