The Effect of Mergers in Search Markets: Large Evidence from the Canadian Mortgage Industry
Bank of Canada
C. Robert Clark
University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER)
May 31, 2013
Bank of Canada Working Paper No. 2012-4
We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation eliminates a potential negotiation partner, weakening consumers bargaining positions. We combine reduced-form techniques to estimate the mergers distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.
Number of Pages in PDF File: 40
Keywords: Financial Institutions, merger analysis
JEL Classification: L1, G2working papers series
Date posted: February 19, 2012 ; Last revised: June 2, 2013
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