Is competition desirable in the credit rating industry?
Competition in the rating industry is desirable to meet the ‘better quality service at a cheaper price’ objective on an ongoing basis. But in view of the industry’s rather unique nature, where the buyer and user of the rating service are different entities, it is essential to guard against some undesirable effects of competition. For instance, survival pressures can make some rating agencies vulnerable to the temptation of assigning higher-than-warranted ratings to attract issuers; or they may be pressured into offering the service at a price that may not support an adequate level of research and analysis.
