Competition and the Structure of Vertical Relationships in Capital Markets

Abstract

We document that firms appear disinclined to share underwriters with other firms in the same industry. We show that this disinclination is evident only when firms engage in product-market competition. This leads us to suggest that concerns about information leakage may motivate the patterns we see in the data. We discuss how these effects help us understand how the investment banking industry is structured, how banks compete, and how prices are set. At each step we exploit sources of exogenous variation that correspond to specific margins on which the effects of interest directly influence incentives and choices.