Monopoly banks intentionally stop lending to rival companies just so they don't waste money on 'innovation arms races.'
April 2, 2026
Original Paper
Financing Rivals
SSRN · 6411439
The Takeaway
Contrary to the idea that banks want to maximize interest by lending as much as possible, this study shows that when a bank funds two rivals, it acts as a strategic arbiter. It caps their credit to ensure they don't over-invest in competition, thereby protecting the profit the bank can eventually extract.
From the abstract
We study how a lender with market power shapes competition between liquidityconstrained rivals. In many settings, including innovation races, procurement, and political contests, the same lender may fund competing firms and choose contract terms strategically. We develop a model in which two firms compete for a prize and a monopolistic lender decides which firms to finance and on what terms. We show that the lender finances both rivals when their internal resources are similar, but finances only