State-aided Price Coordination in the Dutch Mortgage Market

84 Pages Posted: 15 Feb 2019 Last revised: 2 Aug 2019

See all articles by Mark Dijkstra

Mark Dijkstra

Utrecht University - Utrecht School of Economics

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2019

Abstract

We show how price leadership bans, imposed as part of the European Commission's State aid control on all main mortgage providers except the largest bank, shifted the Dutch mortgage market from a competitive to a collusive price leadership equilibrium. In May 2009, mortgage rates in the Netherlands suddenly rose against the decreasing funding cost trend to almost a full percentage point above the Eurozone average. We derive equilibrium best-response functions, identify the price-leader, and estimate response adjustments in daily household mortgage rates between 2004 and 2012. Around the Spring of 2009, when the bans were collectively negotiated, we find structural decreases in the leader's cost pass-through, much closer following of its price, and strongly reduced transmissions of common cost changes into price-followers' mortgage rates. Indicative predicted overcharges are 125 basis points or 26%, on average.

Keywords: banking, competition, mortgage, price leadership, collusion, State aid

JEL Classification: L11, G21, L85

Suggested Citation

Dijkstra, Mark and Schinkel, Maarten Pieter, State-aided Price Coordination in the Dutch Mortgage Market (February 15, 2019). Amsterdam Law School Research Paper No. 2019-07; Amsterdam Center for Law & Economics Working Paper No. 2019-01. Available at SSRN: https://ssrn.com/abstract=3334888 or http://dx.doi.org/10.2139/ssrn.3334888

Mark Dijkstra (Contact Author)

Utrecht University - Utrecht School of Economics ( email )

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Utrecht, +31 30 253 7373 3584 EC
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+31302531617 (Phone)

HOME PAGE: http://https://www.uu.nl/medewerkers/MADijkstra

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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