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Dealer Pricing of Consumer Credit

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  • Bertola, Giuseppe

    (E.U.I. Fiesole)

  • Stefan Hochguertel

    (Universita di Torino)

  • Winfried Koeniger (YE)

    (IZA Bonn)

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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Bibliographic 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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  1. Alessie, Rob & Hochguertel, Stefan & Weber, Guglielmo, 2001. "Consumer Credit: Evidence from Italian Micro Data," CEPR Discussion Papers 3071, C.E.P.R. Discussion Papers.
  2. F. Thomas Juster & Robert P. Shay, 1964. "Consumer Sensitivity to Finance Rates: An Empirical and Analytical Investigation," NBER Books, National Bureau of Economic Research, Inc, number just64-2, May.
  3. 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.
  4. Alessi, R & Michael Devereux & Guglielmo Weber, 1993. "Intertemporal consumption, durables and liquidity constraints: a cohort analysis," IFS Working Papers W93/07, Institute for Fiscal Studies.
  5. 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.
  6. Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 561-72, October.
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Cited by:
  1. Alena Bicakova, 2007. "Does the Good Matter? Evidence on Moral Hazard and Adverse Selection from Consumer Credit Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 66(1), pages 29-66, March.
  2. Elisabetta Iossa & Giuliana Palumbo, 2006. "Overoptimism and Lender Liability in the Consumer Credit Market," Temi di discussione (Economic working papers) 598, Bank of Italy, Economic Research and International Relations Area.
  3. Winfried Koeniger & Thomas Hintermaier, 2007. "Incomplete Markets and the Evolution of US Consumer Debt," 2007 Meeting Papers 256, Society for Economic Dynamics.
  4. Grant, Charles & Padula, Mario, 2013. "Using bounds to investigate household debt repayment behaviour," Research in Economics, Elsevier, vol. 67(4), pages 336-354.
  5. Serena Trucchi, 2011. "How credit markets affect homeownership: an explanation based on differences between Italian regions," CeRP Working Papers 122, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  6. Epstein, Gil S, 2002. "Informational Cascades and Decision to Migrate," CEPR Discussion Papers 3287, C.E.P.R. Discussion Papers.

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