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Price Leadership in the Dutch Mortgage Market

Author

Listed:
  • Leo de Haan
  • Elmer Sterken

Abstract

We study competitive price setting behavior in the Dutch mortgage market, using daily observations on advertised 5- and 10-year mortgage interest rates for a sample of the four largest Dutch banks. We (1) estimate a VECM model, (2) a discrete choice model and (3) a structural conjectural variation model. The results indicate that one of the banks is a price leader, but that waiting for the leader to set the first step does not exclude competitive pricing by the followers.

Suggested Citation

  • Leo de Haan & Elmer Sterken, 2006. "Price Leadership in the Dutch Mortgage Market," DNB Working Papers 102, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:102
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20102_tcm46-146759.pdf
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    References listed on IDEAS

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    1. Lau, Lawrence J., 1982. "On identifying the degree of competitiveness from industry price and output data," Economics Letters, Elsevier, vol. 10(1-2), pages 93-99.
    2. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November.
    3. L.W. Punt & M.C.J. van Rooij, 1999. "The profit-structure relationship, efficiency and mergers in the European banking industry: an empirical assessment," WO Research Memoranda (discontinued) 604, Netherlands Central Bank, Research Department.
    4. Goldberg, Lawrence G. & Rai, Anoop, 1996. "The structure-performance relationship for European banking," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 745-771, May.
    5. W.H.J. Hassink & M. van Leuvensteijn, 2003. "Price-settings and Price Dispersion in the Dutch Mortgage Market," Working Papers 03-07, Utrecht School of Economics.
    6. Leo Haan & Elmer Sterken, 2011. "Bank-Specific Daily Interest Rate Adjustment in the Dutch Mortgage Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 39(3), pages 145-159, June.
    7. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
    8. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, January.
    9. J.A. Bikker, 2003. "Testing for imperfect competition on EU deposit and loan markets with Bresnahan's market power model," Research Series Supervision (discontinued) 52, Netherlands Central Bank, Directorate Supervision.
    10. Coccorese, Paolo, 2005. "Competition in markets with dominant firms: A note on the evidence from the Italian banking industry," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1083-1093, May.
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    Cited by:

    1. Elmer Sterken, 2006. "Competition in the Dutch Mortgage Market," De Economist, Springer, vol. 154(4), pages 587-600, December.
    2. Coccorese, Paolo, 2009. "Market power in local banking monopolies," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1196-1210, July.

    More about this item

    Keywords

    Mortgage market; Competition; Price leadership; VECM; Probit; Conjectural variation.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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