We analyse empirically price-setting in the Dutch mortgage market, using information on about 124,000 Dutch households and 54 mortgage lenders over the years 1996-2001. For a narrowly defined set of mortgages (which have a fixed lending rate for ten years), the range of the lending rate between lenders varies between 0.86 and 1.24 percentage points over these years. Prices remain dispersed across lenders, even after controlling for the characteristics of the household and the municipality (1 percentage point). We find that the price dispersion of mortgages sold by banks is smaller than that of mortgages sold by life insurers (0.60 versus 1.28 percentage points). This difference may be due to lower agency costs for banks than for life insurers. Another likely explanation is that the market segment for banks is more transparent than that of insurance companies. This may imply that there is imperfect competition among lenders, so that some of them can develop market power. Furthermore, we find indications for market power since lenders with higher costs have higher lending rates, accounting for a maximum change of the lending rate by 0.076 0.16 percentage point.
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Paper provided by Utrecht School of Economics in its series Working Papers with number
03-07.
Find related papers by JEL classification: D40 - Microeconomics - - Market Structure and Pricing - - - General D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
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