We study how signaling affects equilibrium outcomes and welfare in an online credit market, using detailed data on loan characteristics and borrower repayment. We build and estimate an equilibrium model in which a borrower may signal her default risk through the reserve interest rate. Comparing markets with and without signaling relative to the benchmark with no asymmetric information, we find that adverse selection destroys as much as 34% of total surplus, up to 78% of which can be restored with signaling. We also estimate backward-bending supply curves for some markets, consistent with the prediction made by Stiglitz and Weiss in 1981.

How far should an industry be allowed to consolidate when competition and innovation are endogenous? We develop a stochastically alternating-move game of dynamic oligopoly and estimate it using data from the hard disk drive industry, in which a dozen global players consolidated into only three in the last 20 years. We find plateau-shaped equilibrium relationships between competition and innovation, with heterogeneity across time and productivity. Our counterfactual simulations suggest the current rule-of-thumb policy, which stops mergers when three or fewer firms exist, strikes approximately the right balance between pro-competitive effects and value-destruction side effects in this dynamic welfare trade-off.