We examine whether strong networks among incumbent venture capitalists (VCs) in local markets help restrict entry by outside VCs, thus improving incumbents' bargaining power over entrepreneurs. More densely networked markets experience less entry, with a one‐standard deviation increase in network ties among incumbents reducing entry by approximately one‐third. Entrants with established ties to target‐market incumbents appear able to overcome this barrier to entry; in turn, incumbents react strategically to an increased threat of entry by freezing out any incumbents who facilitate entry into their market. Incumbents appear to benefit from reduced entry by paying lower prices for their deals.

We show that information flows between investment banks and their clients affect relationships and that shocks to these flows affect corporate investment. Firms avoid sharing investment banks in their industry, but only when they engage in product market competition. This suggests that concerns about disclosure of confidential information to strategic rivals determine firms’ investment bank choices. Using exogenous shocks to information flows arising from bank mergers, we show that the desire to avoid sharing banks has a substantial effect on investment. These information effects help us understand how the investment banking industry is structured, how banks compete, and how prices are set.