The Effect of Mergers in Search Market: Evidence from the Canadian Mortgage Industry
We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation eliminates a potential negotiation part- ner, weakening consumers bargaining positions. We combine reduced-form techniques to es- timate the mergers distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.
Jean-Francois Houde thanks NSF for funding (SES- 1024840). We thank the Canada Mortgage and Housing Corporation and Genworth Financial for providing us with the data.The views of this paper are those of the authors and do not necessarily reflect those of the Bank of Canada or the National Bureau of Economic Research.
Jason Allen & Robert Clark & Jean-Fran?ois Houde, 2014. "The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry," American Economic Review, American Economic Association, vol. 104(10), pages 3365-96, October. citation courtesy of