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Price Dispersion in Mortgage Markets
Author(s) -
Allen Jason,
Clark Robert,
Houde JeanFrançois
Publication year - 2014
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12046
Subject(s) - price dispersion , leverage (statistics) , dispersion (optics) , economics , monetary economics , discounting , search cost , business , financial economics , microeconomics , econometrics , finance , physics , machine learning , computer science , optics
Using transaction‐level data on C anadian mortgage contracts, we document an increase in the average discount negotiated off the posted price and in rate dispersion. Our aim is to identify the beneficiaries of discounting and to test whether dispersion is caused by price discrimination. The standard explanation for dispersion in credit markets is risk‐based pricing. Our contracts are guaranteed by government‐backed insurance, so risk cannot be the main factor. We find that lenders set prices that reflect consumer bargaining leverage, not just costs. The presence of dispersion implies a lack of competition, but our results show this to be consumer specific.