Dealer Pricing of Consumer Credit
AbstractInterest 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 InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 24.
Date of creation: 29 Aug 2002
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Other versions of this item:
- Giuseppe Bertola & Stefan Hochguertel & Winfried Koeniger, 2005. "Dealer Pricing Of Consumer Credit ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1103-1142, November.
- Bertola, Giuseppe & Hochguertel, Stefan & Koeniger, Winfried, 2002. "Dealer Pricing of Consumer Credit," IZA Discussion Papers 440, Institute for the Study of Labor (IZA).
- Bertola, Giuseppe & Hochguertel, Stefan & Koeniger, Winfried, 2002. "Dealer Pricing of Consumer Credit," CEPR Discussion Papers 3160, C.E.P.R. Discussion Papers.
- D10 - Microeconomics - - Household Behavior - - - General
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-08 (All new papers)
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