The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry

Jason Allen, Robert Clark and Jean-Fran?ois Houde

American Economic Review, 2014, vol. 104, issue 10, 3365-96

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 weakens consumers' bargaining positions. We use reduced-form techniques to estimate the mergers' distributional impact, and show that competition benefits only consumers at the bottom and middle of the transaction price distribution, and that mergers reduce the dispersion of prices. We illustrate that these effects can be explained by the presence of search frictions, and that the average effect of mergers on rates underestimates the increase in market power.

JEL-codes: G21 G34 K21 L13 L41 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.10.3365
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Citations: View citations in EconPapers (63)

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Working Paper: The Effect of Mergers in Search Market: Evidence from the Canadian Mortgage Industry (2013)
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