Dealer Pricing of Consumer Credit
Centre for Economic Policy Research (CEPR); EDHEC Business School
VU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)
University of St.Gallen; CESifo (Center for Economic Studies and Ifo Institute); Center for Financial Studies (CFS); Institute for the Study of Labor (IZA)
International Economic Review, Vol. 46, No. 4, pp. 1103-1142, November 2005
Price discrimination incentives may induce dealers to bear the financial cost of their customers' credit purchases. We focus on how financial market imperfections make it possible to segment the customer population. When borrowing and lending rates differ from each other and from the rate of interest on a durable good purchase, the structure of those rates influences customers' choices to purchase on credit or cash terms, and the scope for dealers' price discrimination. Empirical analysis of a set of installment-credit, personal-loan, and regional interest rate data offers considerable support to the assumptions and implications of our theoretical framework.
Number of Pages in PDF File: 40
Date posted: November 6, 2005