This paper provides a simple model showing that the extent of competition in credit
markets is important in determining the value of lending relationships. Creditors
are more likely to finance credit constrained firms when credit markets are concentrated
because it is easier for these creditors to internalize the benefits of assisting
the firms. The model has implications about the availability and the price of credit
as firms age in different markets. The paper offers evidence for these implications
from small business data. It concludes with conjectures on the costs and benefits
of liberalizing financial markets, as well as the timing of such reforms.