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Are prices 'sticky' online? Market structure effects and asymmetric responses to cost shocks in online mortgage markets

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  • Arbatskaya, Maria
  • Baye, Michael R.

Abstract

We analyze daily mortgage rates posted by online lenders at the price comparison site, Microsurf. While cost shocks occurred almost daily in our sample, quoted mortgage rates are surprisingly rigid: Only 16 percent of the posted rates represent changes. However, firms that adjusted rates in response to cost shocks did so quite rapidly; about 98 percent of a cost shock was passed through within two days of the cost shock. Duration analysis reveals that the observed rigidity in rates systematically depends on market structure: Online mortgage rates are 30 to 40 percent more durable in concentrated markets than in markets where there are many competitors. We also find that rates posted online tend to exhibit downward stickiness; rate adjustments in response to cost increases are about twice the corresponding adjustments for cost decreases.
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  • Arbatskaya, Maria & Baye, Michael R., 2004. "Are prices 'sticky' online? Market structure effects and asymmetric responses to cost shocks in online mortgage markets," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1443-1462, December.
    • Handle: RePEc:eee:indorg:v:22:y:2004:i:10:p:1443-1462
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    Cited by:

    1. Sara Ellison & Christopher M. Snyder & Hongkai Zhang, 2016. "Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market," CESifo Working Paper Series 6285, CESifo.
    2. Antoniou, Fabio & Fiocco, Raffaele & Guo, Dongyu, 2017. "Asymmetric price adjustments: A supply side approach," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 335-360.
    3. Lu, Fuxiao & Tang, Wansheng & Liu, Guowei & Zhang, Jianxiong, 2019. "Cooperative advertising: A way escaping from the prisoner’s dilemma in a supply chain with sticky price," Omega, Elsevier, vol. 86(C), pages 87-106.
    4. Dinlersoz, Emin M. & Pereira, Pedro, 2007. "On the diffusion of electronic commerce," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 541-574, June.
    5. David Fielding, 2008. "Inflation Volatility and Economic Development: Evidence from Nigeria," Working Papers 0807, University of Otago, Department of Economics, revised Sep 2008.
    6. Patricio Hevia & César Vásquez, 2017. "Caracterización de las Tasas de Interés de Créditos para la Vivienda," Economic Statistics Series 122, Central Bank of Chile.
    7. Fan Zhang & Susu Cheng, 2021. "Behavioral choices in a dynamic duopoly with process innovation and sticky price: Myopia versus farsightedness," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 662-674, April.
    8. Mariano Tappata, 2009. "Rockets and feathers: Understanding asymmetric pricing," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 673-687, December.
    9. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    10. Abbas Valadkhani & Sajid Anwar, 2012. "Interest Rate Pass-Through and the Asymmetric Relationship between the Cash Rate and the Mortgage Rate," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 341-350, September.
    11. Leo Haan & Elmer Sterken, 2011. "Bank-Specific Daily Interest Rate Adjustment in the Dutch Mortgage Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 39(3), pages 145-159, June.
    12. Jason Allen & Darcey McVanel, 2009. "Price Movements in the Canadian Residential Mortgage Market," Staff Working Papers 09-13, Bank of Canada.
    13. Shih-Hsien Chuang, 2020. "Cost pass-through in the airline industry: price responses and asymmetries," Economics Bulletin, AccessEcon, vol. 40(1), pages 639-652.
    14. David Fielding, 2010. "Non-monetary Determinants of Inflation Volatility: Evidence from Nigeria," Journal of African Economies, Centre for the Study of African Economies, vol. 19(1), pages 111-139, January.

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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