Per-Customer Quantity Limit and Price Discrimination: Evidence from the U.S. Residential Mortgage Market

75 Pages Posted: 22 Jan 2020

See all articles by Chao Ma

Chao Ma

WISE & SOE, Xiamen University

Date Written: January 11, 2020

Abstract

Theoretically, if firms face a regulatory per-customer quantity limit, they should have an incentive to discriminatively charge high-demand customers higher prices and make them just willing to buy a quantity equal to the limit. In the U.S. residential mortgage industry, mortgages with origination balances above the conforming loan limits cannot be guaranteed by Government-Sponsored Enterprises, which make lenders face a per-customer quantity limit. This paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination. This study rules out the alternative explanation that those borrowers are of higher risk (lending cost) than other borrowers.

Keywords: Price Discrimination, Quantity Limit, Mortgage, Financial Institution, Bunching

JEL Classification: L1, L5, L8, G2, R3

Suggested Citation

Ma, Chao, Per-Customer Quantity Limit and Price Discrimination: Evidence from the U.S. Residential Mortgage Market (January 11, 2020). Available at SSRN: https://ssrn.com/abstract=3517606 or http://dx.doi.org/10.2139/ssrn.3517606

Chao Ma (Contact Author)

WISE & SOE, Xiamen University ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

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