The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry
AbstractWe 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 weakens consumers' bargaining positions. We use reduced-form techniques to estimate the mergers' distributional impact, and show that competition benefits only consumers at the bottom and middle of the transaction price distribution, and that mergers reduce the dispersion of prices. We illustrate that these effects can be explained by the presence of search frictions, and that the average effect of mergers on rates underestimates the increase in market power.
CitationAllen, Jason, Robert Clark, and Jean-François Houde. 2014. "The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry." American Economic Review, 104 (10): 3365-96. DOI: 10.1257/aer.104.10.3365
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- K21 Antitrust Law
- L13 Oligopoly and Other Imperfect Markets
- L41 Monopolization; Horizontal Anticompetitive Practices