Some Tests of Competition in the Australian Housing Loan Market

Jerome Fahrer and Thomas Rohling
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Jerome Fahrer: Reserve Bank of Australia
Thomas Rohling: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: In this paper we investigate the degree of competition in the market for housing loans by examining a new data set, the asset composition of individual banks. We construct a Herfindahl index of concentration in this market, and estimate a model of conjectural variations to examine the reactions of each bank to changes in the value of loans made by other banks. Certain forms of competition are nested within this framework. Our findings lead us to decisively reject the hypotheses of perfect competition and perfect collusion. We are unable to reject the hypothesis that this market can be characterised as a Cournot oligopoly.

Date: 1992-02
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