Borrowing from a Bigtech Platform

Lending and Monitoring: Big Tech vs Banks

“…Hau, Huang, Shan, and Sheng (2019) and Frost, Gambacorta, Huang, Shin, and Zbinden (2019) provide evidence that big tech credit flows to more financially constrained merchants. On the theory side Huang (2021) and Li and Pegoraro (2022) explore the idea that platforms have a more direct access to merchants' cash-flows than banks as these cash-flows are generated through the platform. In Li and Pegoraro (2022), this ability to capture merchants' revenues gives the platform an edge for borrowers that are perceived as more likely to try and abscond with their profits and therefore are less likely to have access to bank credit.…”

“…On the theory side Huang (2021) and Li and Pegoraro (2022) explore the idea that platforms have a more direct access to merchants' cash-flows than banks as these cash-flows are generated through the platform. In Li and Pegoraro (2022), this ability to capture merchants' revenues gives the platform an edge for borrowers that are perceived as more likely to try and abscond with their profits and therefore are less likely to have access to bank credit. Our key difference with these papers is that we jointly model the platform's decision to provide credit and to set access fees.…”

“…Endogenizing platform pricing allows us to evaluate cross-side network effects and their welfare implications, as well as the relationship between the platform's incentive to enter the credit market and its overall market power. On the other hand, we abstract from ex-ante asymmetric information in the credit market and from information acquisition by the platform analyzed in Huang (2021) and in Li and Pegoraro (2022).…”