Working Paper: NBER ID: w19126
Authors: Jason Allen; Robert Clark; Jean-Francois Houde
Abstract: We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation eliminates a potential negotiation part- ner, weakening consumers bargaining positions. We combine reduced-form techniques to es- timate the mergers distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.
Keywords: mergers; price dispersion; mortgage market; search costs; negotiation
JEL Codes: L11; L41; L85
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger (G34) | average interest rate in treated markets (E43) |
| merger (G34) | interest rates in lower and middle percentiles (E43) |
| merger (G34) | interest rates in top 30% of distribution (E43) |
| merger (G34) | interquartile range of interest rates (E43) |
| merger (G34) | coefficient of variation of interest rates (E43) |
| number of firms (L20) | residual price dispersion in negotiated price markets (D43) |