Counteroffers and Price Discrimination in Mortgage Lending

Steven Ongena, Florentina Paraschiv and Endre J. Reite

Journal of Empirical Finance, 2023, vol. 74, issue C

Abstract: This study analyzes price discrimination and household switching in the residential mortgage market. Using a unique proprietary micro dataset from Norway, we examine the factors that influence a bank’s choice to counter an offer from a competing bank and the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the concurrent best rate offered to new customers by the current bank. The estimates show that a bank employs internal information to decide how to counter a competing offer and that current clients pay approximately 20 basis points more than new customers. We surmise that new regulations and digitalization enhance transparency and can reduce the rate differential. However, introducing new banking products and changes in the timing of rate differentiation —from immediate upfront to gradually over time —may be used to maintain a constant rate differential.

Keywords: Mortgage lending; Financial regulation; Consumer protection; Digitalization; Price discrimination (search for similar items in EconPapers)
JEL-codes: C41 D12 D14 G21 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Counteroffers and Price Descrimination in Mortgage Lending (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:74:y:2023:i:c:s0927539823000981

DOI: 10.1016/j.jempfin.2023.101431

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