Search frictions and market power in negotiated price markets

Jason Allen, Robert Clark and Jean-Francois Houde

No 274729, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: We provide a framework for empirical analysis of negotiated-price markets. Using mortgage market data and a search and negotiation model, we characterize the welfare impact of search frictions and quantify the role of search costs and brand loyalty for market power. Search frictions reduce consumer surplus by $12/month/consumer, 28% of which can be associated with discrimination, 22% with inefficient matching, and 50% with search costs. Large consumer-base banks have margins 70% higher than those with small consumer bases. The main source of this incumbency advantage is brand loyalty; however, price discrimination based on search frictions accounts for almost a third.

Keywords: Consumer/Household Economics; Financial Economics (search for similar items in EconPapers)
Pages: 43
Date: 2018-03
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https://ageconsearch.umn.edu/record/274729/files/qed_wp_1403.pdf (application/pdf)

Related works:
Journal Article: Search Frictions and Market Power in Negotiated-Price Markets (2019)
Working Paper: Search Frictions And Market Power In Negotiated Price Markets (2018)
Working Paper: Search Frictions and Market Power in Negotiated Price Markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:274729

DOI: 10.22004/ag.econ.274729

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