Exclusion, competition, and regulation in the retail loan market

Arie Melnik, Oz Shy

Research output: Contribution to journalArticlepeer-review


Exclusion of borrowers from credit markets became a primary concern for regulators during the recovery from the recent recession. The paper analyzes loan-making institutions that set both interest rates and minimum credit requirements. We propose analytical measures of the degree of borrower exclusion from receiving loans. We analyze five market structures: Single lender, regulated interest rate, entry, interest rate discrimination, and highly-competitive lenders. Interest rate regulation improves total welfare relative to a single lender market. However, entry of a second lender reduces exclusion and generates higher total welfare. In the absence of fixed costs, perfect and Bertrand competition are optimal.

Original languageEnglish
Pages (from-to)189-198
Number of pages10
JournalJournal of Banking and Finance
StatePublished - 1 Mar 2015

Bibliographical note

Publisher Copyright:
© 2014 Elsevier B.V.


  • Credit quality
  • Exclusion of borrowers
  • Interest rate regulation
  • Lending

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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