Competing for Deal Flow in Local Mortgage Markets
46 Pages Posted: 8 Sep 2017 Last revised: 8 Feb 2019
Date Written: December 8, 2018
How do firms compete and grow in local markets? Using inferred discontinuities in mortgage application acceptance models to generate local origination shocks, we find that the lender-specific availability of attractive local clients positively influences the future growth of business for those lenders. We show that the quickest-growing (not the largest) competitors divert applications and originations from other lenders. Facing a quickly-growing competitor, banks charge higher interest rates, partially due to the increased risk of their loans. We show evidence on a mechanism of limited client attention consistent with social and economic theories that complement resource-partitioning explanations of local competition.
JEL Classification: G21, D40
Suggested Citation: Suggested Citation