IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/0926.html
   My bibliography  Save this paper

Price discrimination and mortgage choice

Author

Listed:
  • Coen, Jamie

    (London School of Economics)

  • Kashyap, Anil

    (University of Chicago)

  • Rostom, May

    (Bank of England)

Abstract

We characterise the large number of mortgage offers for which people qualify. Almost no one picks the cheapest option, nonetheless the one selected is not usually much more expensive. A few borrowers make very expensive choices. These big mistakes are most common when the menu they face has many expensive options, and are most likely for high loan to value and loan to income borrowers. Young people and first-time buyers are more mistake-prone. The dispersion in the mortgage menu is consistent with banks attempting to price discriminate for some borrowers who might pick poorly while competing for others who might shop more effectively.

Suggested Citation

  • Coen, Jamie & Kashyap, Anil & Rostom, May, 2021. "Price discrimination and mortgage choice," Bank of England working papers 926, Bank of England.
    • Handle: RePEc:boe:boeewp:0926
    as

    Download full text from publisher

    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2021/price-discrimination-and-mortgage-choice.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Philippe Bracke & Silvana Tenreyro, 2021. "History Dependence in the Housing Market," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 420-443, April.
    2. James Cloyne & Kilian Huber & Ethan Ilzetzki & Henrik Kleven, 2019. "The Effect of House Prices on Household Borrowing: A New Approach," American Economic Review, American Economic Association, vol. 109(6), pages 2104-2136, June.
    3. Greg Kaplan & Guido Menzio, 2015. "The Morphology Of Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1165-1206, November.
    4. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy and retirement planning in the United States," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(4), pages 509-525, October.
    5. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2009. "The Age of Reason: Financial Decisions over the Life Cycle and Implications for Regulation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 51-117.
    6. Guido Menzio & Nicholas Trachter, 2018. "Equilibrium Price Dispersion Across and Within Stores," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 205-220, April.
    7. Aron, Janine & Muellbauer, John, 2016. "“Modelling and forecasting mortgage delinquency and foreclosure in the UK.”," Journal of Urban Economics, Elsevier, vol. 94(C), pages 32-53.
    8. Fiona Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2003. "Consumer Information and Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 65-92, March.
    9. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    10. Liu, Lu, 2019. "Non-salient fees in the mortgage market," Bank of England working papers 819, Bank of England.
    11. Greg Kaplan & Guido Menzio, 2015. "The Morphology Of Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1165-1206, November.
    12. Hong Ru & Antoinette Schoar, 2016. "Do Credit Card Companies Screen for Behavioral Biases?," NBER Working Papers 22360, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Myśliwski, Mateusz & Rostom, May, 2022. "Value of information, search, and competition in the UK mortgage market," Bank of England working papers 967, Bank of England.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Byrne, David P. & Martin, Leslie A., 2021. "Consumer search and income inequality," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    2. Böheim, René & Hackl, Franz & Hölzl-Leitner, Michael, 2021. "The impact of price adjustment costs on price dispersion in e-commerce," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    3. Liu, Lu, 2019. "Non-salient fees in the mortgage market," Bank of England working papers 819, Bank of England.
    4. Liu, Lu, 2023. "The demand for long-term mortgage contracts and the role of collateral," ESRB Working Paper Series 142, European Systemic Risk Board.
    5. José Tudón, 2021. "Can price dispersion be supported solely by information frictions?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 75-90, April.
    6. Jeisson Cárdenas & Jesús Otero & Luis H. Gutiérrez, 2022. "Search intensity, search time and prices: evidence from retail diesel markets in France," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(6), pages 4797-4807, December.
    7. Liu, Lu, 2023. "The demand for long-term mortgage contracts and the role of collateral," Bank of England working papers 1009, Bank of England.
    8. Tarne, Ruben & Bezemer, Dirk & Theobald, Thomas, 2022. "The effect of borrower-specific loan-to-value policies on household debt, wealth inequality and consumption volatility: An agent-based analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    9. Greg Kaplan & Guido Menzio & Leena Rudanko & Nicholas Trachter, 2019. "Relative Price Dispersion: Evidence and Theory," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 68-124, August.
    10. Niu, Geng & Zhou, Yang & Gan, Hongwu, 2020. "Financial literacy and retirement preparation in China," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    11. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2019. "Price Dynamics With Customer Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(1), pages 413-446, February.
    12. Kadoya, Yoshihiko & Khan, Mostafa Saidur Rahim, 2020. "What determines financial literacy in Japan?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(3), pages 353-371, July.
    13. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    14. Mark Egan & Gregor Matvos & Amit Seru, 2019. "The Market for Financial Adviser Misconduct," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 233-295.
    15. Argente, David & Lee, Munseob & Moreira, Sara, 2018. "Innovation and product reallocation in the great recession," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 1-20.
    16. Martin Beraja & Erik Hurst & Juan Ospina, 2019. "The Aggregate Implications of Regional Business Cycles," Econometrica, Econometric Society, vol. 87(6), pages 1789-1833, November.
    17. Sheremirov, Viacheslav, 2020. "Price dispersion and inflation: New facts and theoretical implications," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 59-70.
    18. Chahrour, Ryan & Stevens, Luminita, 2020. "Price dispersion and the border effect," Journal of Monetary Economics, Elsevier, vol. 116(C), pages 135-146.
    19. Zack Cooper & Stuart V Craig & Martin Gaynor & John Van Reenen, 2019. "The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 51-107.
    20. Cristian Badarinza & John Y. Campbell & Tarun Ramadorai, 2016. "International Comparative Household Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 111-144, October.

    More about this item

    Keywords

    Price discrimination; consumer choice; mortgages;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0926. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Digital Media Team (email available below). General contact details of provider: https://edirc.repec.org/data/boegvuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.