Working Paper: NBER ID: w19883
Authors: Jason Allen; Robert Clark; Jean-Francois Houde
Abstract: This paper develops and estimates a search and bargaining model designed to measure the welfare loss associated with frictions in oligopoly markets with negotiated prices. We use the model to quantify the consumer surplus loss induced by the presence of search frictions in the Canadian mortgage market, and evaluate the relative importance of market power, inefficient allocation, and direct search costs in explaining the loss. Our results suggest that search frictions reduce consumer surplus by almost $20 per month per consumer, and that 17% of this reduction can be associated with discrimination, 30% with inefficient matching, and the remainder with the search cost.
Keywords: search frictions; market power; consumer surplus; negotiated prices; Canadian mortgage market
JEL Codes: L13; L41; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| search frictions (F12) | consumer surplus (D46) |
| discrimination (J71) | consumer surplus loss (D11) |
| inefficient matching (C78) | consumer surplus loss (D11) |
| direct search costs (J32) | consumer surplus loss (D11) |
| home bank premium (G21) | impact of search frictions (D83) |
| competition (L13) | welfare loss from price discrimination (D69) |
| increased misallocation and larger search costs (D61) | welfare loss from price discrimination (D69) |