Information Acquisition in Competitive Markets: An Application to the US Mortgage Market
- (pp. 65-106)
Abstract
How do price commitments impact the amount of information firms acquire about potential customers? We examine this question in the context of a competitive market where firms search for information that may disqualify applicants. Contracts are incomplete because the amount of information acquired cannot be observed. Despite competition, we find that firms search for too much information in equilibrium. If price discrimination is prohibited, members of high-risk groups suffer disproportionately high rejection rates. If rejected applicants remain in the market, the resulting adverse selection can be severe. We apply the results to the US mortgage market. (JEL D82, D83, D86, G21)Citation
Burke, Jeremy M., Curtis R. Taylor, and Liad Wagman. 2012. "Information Acquisition in Competitive Markets: An Application to the US Mortgage Market." American Economic Journal: Microeconomics, 4 (4): 65-106. DOI: 10.1257/mic.4.4.65JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- D86 Economics of Contract: Theory
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
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