Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80789
Authors: 
Allen, Jason
Clark, Robert
Houde, Jean-François
Year of Publication: 
2012
Series/Report no.: 
Bank of Canada Working Paper 2012-4
Abstract: 
This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of a merger therefore is to reduce the number of partners available with whom to negotiate, although it can also change the characteristics of the product, and impact the search effort of consumers. Using a Canadian merger as a case study, we find that, overall, consolidation had little effect on rates suggesting that, on average, the mortgage market is fairly competitive. However, a decomposition of the aggregate treatment effect reveals important heterogeneity in the impact of the merger. We find that consumers gathering multiple quotes are affected by the merger, while those who do not search are not. These results suggest that market power originates in large part from the presence of asymmetric search costs.
Subjects: 
Financial institutions
Financial services
Interest rates
JEL: 
L1
G2
Document Type: 
Working Paper

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