Information Acquisition in Competitive Markets: An Application to the US Mortgage Market

Jeremy M. Burke, Curtis R. Taylor and Liad Wagman

American Economic Journal: Microeconomics, 2012, vol. 4, issue 4, 65-106

Abstract: How do price commitments impact the amount of information firms acquire about potential customers? We examine this question in the context of a competitive market where firms search for information that may disqualify applicants. Contracts are incomplete because the amount of information acquired cannot be observed. Despite competition, we find that firms search for too much information in equilibrium. If price discrimination is prohibited, members of high-risk groups suffer disproportionately high rejection rates. If rejected applicants remain in the market, the resulting adverse selection can be severe. We apply the results to the US mortgage market. (JEL D82, D83, D86, G21)

JEL-codes: D82 D83 D86 G21 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/mic.4.4.65
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Citations: View citations in EconPapers (12)

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