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The Effect of Mergers in Decentralized Markets: Evidence from the Canadian Mortgage IndustryJason AllenBank of Canada C. Robert ClarkHEC Montreal Jean-Francois HoudeUniversity of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER) February 9, 2012 Bank of Canada Working Paper No. 2012-4 Abstract: This paper examines the impact of bank consolidation on mortgage rates. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of consolidation is therefore to reduce the number of partners with whom to negotiate. Using a Canadian merger as a case study, we find that, on aggregate, margins increased 9% relative to the average, but also that there is important heterogeneity in the impact of the merger: consumers able to negotiate sizeable discounts were adversely affected, while consumers at the top of the conditional price distribution were not. Overall, the merger decreased price dispersion.
Number of Pages in PDF File: 31 Keywords: Financial Institutions, merger analysis JEL Classification: L1, G2 working papers seriesDate posted: February 19, 2012 ; Last revised: September 11, 2012Suggested CitationContact Information
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