Melnik, Arie and Shy, Oz, Exclusion, Competition, and Regulation in the Retail Loan Market (October 31, 2013). Available at SSRN: http://ssrn.com/abstract=2374975

“Exclusion of borrowers from credit markets became a primary concern for regulators during the recovery from the recent recession. We analyze market for loans where loan-making institutions set both interest rates and minimum credit or quality requirements. We analyze a monopoly lending financial institution and then the impact of entry of another credit provider, by computing market shares, the number of excluded (potential) borrowers, and social welfare. We show that regulating interest rates reduces social welfare. Some borrowers may gain from a lower mandated interest rate, but others may be excluded from the loan market.”