Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Friday, March 23, 2012

Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending

Posted by D. Daniel Sokol

Jason Allen (Bank of Canada), Robert Clark (HEC Montreal) and Jean-Francois Houde (University of Wisconsin-Madison) explore Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending.

ABSTRACT: This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of a merger therefore is to reduce the number of partners available with whom to negotiate, although it can also change the characteristics of the product, and impact the search effort of consumers. Using a Canadian merger as a case study, we find that, overall, consolidation had little effect on rates suggesting that, on average, the mortgage market is fairly competitive. However, a decomposition of the aggregate treatment effect reveals important heterogeneity in the impact of the merger. We find that consumers gathering multiple quotes are affected by the merger, while those who do not search are not. These results suggest that market power originates in large part from the presence of asymmetric search costs.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/03/price-competition-and-concentration-in-search-and-negotiation-markets-evidence-from-mortgage-lending.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0167634f7197970b

Listed below are links to weblogs that reference Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending :

Comments

Post a comment