MARKET SHARE QUOTAS AND COMMUNITY REINVESTMENT

This notes explores some theoretical implications of the U.S. Departme nt of Justice's policy requiring lenders to seek as much market share in protected neighborhoods as elsewhere. In the asymmetric Cournot cas e, the high-cost lender in the protected neighborhood responds in the expected way, but the low-cost lender's response depends on the curvat ure of the demand function. For concave demand, the low-cast lender's output decisions run counter to those of the high-cost lender, undermi ning the policy's effectiveness and inefficiently shifting production in the protected market from the low-cost provider to the high-cost pr ovider.