SOFTENING COMPETITION BY INDUCING SWITCHING IN CREDIT MARKETS: A CORRECTION JanBouckaertw HansDegrysez Jorge Ferna¤ ndez-Ruiz§ MiguelGarc|¤a-Cestonaz IN A RECENT ARTICLE IN THIS JOURNAL, Bouckaert and Degryse [2004] (denoted B&D) present a model in which banks strategically commit to disclosing borrower information. In this note, we point out an error in B&D and show that, although banks’ information disclosure may indeed arise in equilibrium, it only does so if adverse selection is not too harsh. In their model, B&D characterize the outcome of the first-period banking competition subgames under different information disclosure situations. Proposition 1 presents the results with information disclosure, while Proposition 2 characterizes the subgame without such disclosure and Proposition 3 covers the subgame in which only one bank discloses information. These last two propositions make the assumption that there is harsh adverse selection (that is, m o m  ). Propositions 1–3 are then used to determine the initial banks’ information disclosure choice when adverse selection is severe (m o m  ), a result that is presented in Proposition 4. Now we show that there is an error in B&D’s Proposition 3, which carries over to Proposition 4. Furthermore, we present the modified results. We first show that Proposition 3 is not correct. To see this, consider the case in which s 5 0 (which satisfies the assumption 0 ) 2 s ) s, made throughout the paper). In this case, a 5 2/3 and Proposition 3 implies that the equilibrium period-one interest rates are, from (21) and (22) in B&D: ðC1Þ R 1 A ¼ R 0 =m  5d s=18  e; and ðC2Þ R 1 B ¼ R 0 =m  d ½q  R 0 þ d s=9: r 2008 The Authors. Journal compilation r 2008 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK, and 350 Main Street, Malden, MA 02148, USA. 679 THE JOURNAL OF INDUSTRIAL ECONOMICS 0022-1821 Volume LVI September 2008 No. 3 wAuthors’ affiliations: Dept. of Economics, Universiteit Antwerpen, Prinsstraat 13, Antwerp, Belgium. e-mail: jan.bouckaert@ua.ac.be zCentER-Tilburg University, CESIfo and University of Leuven, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands. e-mail: H.Degryse@uvt.nl §Centro de Estudios Econo´ micos, El Colegio de Me´ xico, Camino al Ajusco 20, Pedegral de Santa Teresa, Me´xico D.F., Mexico. e-mail: jfernan@colmex.mx zDepartment d’Economia de l’Empresa, Universitat Auto`noma de Barcelona, Campus Bellaterra, Bellaterra, Barcelona, Spain. e-mail: miguel.garcia.cestona@uab.cat