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Dealer Pricing of Consumer Credit

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Author Info
Bertola, Giuseppe (E.U.I. Fiesole)
Stefan Hochguertel (Universita di Torino)
Winfried Koeniger (YE) (IZA Bonn)

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Abstract

Interest rates on consumer lending are lower when funds are tied to purchase of a durable good than when they are made available on an unconditional basis. Further, dealers often choose to bear the financial cost of their customers' credit purchases. This paper interprets this phenomenon in terms of monopolistic price discrimination. We characterize consumers' intertemporal consumption decisions and the dealer's pricing incentives when the consumers' unconditional lending and borrowing rate as well as the internal rate of return of the durable purchase differ. Our empirical analysis offers considerable support for the assumptions and implications of our theoretical perspective.

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Publisher Info
Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 24.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:24

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Web page: http://www.res.org.uk/society/annualconf.asp
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Giuseppe Bertola, 2005. "Uncertainty and Consumer Durables Adjustment," Review of Economic Studies, Blackwell Publishing, vol. 72(4), pages 973-1007, October. [Downloadable!] (restricted)
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  2. Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 561-72, October. [Downloadable!] (restricted)
  3. Pissarides, Christopher A, 1978. "Liquidity Considerations in the Theory of Consumption," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 279-96, May. [Downloadable!] (restricted)
  4. Alessie, Rob & Hochguertel, Stefan & Weber, Guglielmo, 2001. "Consumer Credit: Evidence from Italian Micro Data," CEPR Discussion Papers 3071, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Alessie, Rob & Devereux, Michael P. & Weber, Guglielmo, 1997. "Intertemporal consumption, durables and liquidity constraints: A cohort analysis," European Economic Review, Elsevier, vol. 41(1), pages 37-59, January. [Downloadable!] (restricted)
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  6. Attanasio, Orazio P., 1995. "The intertemporal allocation of consumption: theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 39-56, June. [Downloadable!] (restricted)
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  1. Alena Bicakova, 2007. "Does the Good Matter? Evidence on Moral Hazard and Adverse Selection from Consumer Credit Market," Economics Working Papers ECO2007/02, European University Institute. [Downloadable!]
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  2. Epstein, Gil S., 2002. "Informational Cascades and Decision to Migrate," IZA Discussion Papers 445, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Mario Padula & Charles Grant, 2007. "Bounds on repayment behavior: evidence for the consumer credit market," Working Papers 2007_26, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
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