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Abstract
This article examines bank and industry concentration jointly within the static framework of Cournot competition. The general equilibrium is one in which banks form a multiplant monopoly and firm profit is zero. This is an unstable equilibrium because: (A) Firms have an incentive to (i) collude to "fight banks back" in the context of bilateral monopoly bargaining, and/or (ii) modernize their business towards financial independence; (B) Banks’ best response is (i) innovation too, combined with (ii) disciplinary credit rationing.