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Dealer Pricing of Consumer Credit

Author

Listed:
  • 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.

Suggested Citation

  • Bertola, Giuseppe & Stefan Hochguertel & Winfried Koeniger (YE), 2002. "Dealer Pricing of Consumer Credit," Royal Economic Society Annual Conference 2002 24, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:24
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    Citations

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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. Grant, Charles & Padula, Mario, 2013. "Using bounds to investigate household debt repayment behaviour," Research in Economics, Elsevier, vol. 67(4), pages 336-354.
    3. Haefner, Samuel & Haeusle, Niklas & Koeniger, Winfried & Braun, Alexander, 2024. "Optimal Compensation in Competitive Labor Markets with Heterogeneous Employers and Workers," Economics Working Paper Series 2405, University of St. Gallen, School of Economics and Political Science.
    4. Evren Damar & Ian Lange & Caitlin McKennie & Mirko Moro, 2024. "Banking deregulation and consumption of home durables," Climatic Change, Springer, vol. 177(3), pages 1-20, March.
    5. Philip Brock & Helmut Franken M., 2003. "Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(3), pages 45-65, December.
    6. repec:ces:ceswps:_11488 is not listed on IDEAS
    7. Elisabetta Iossa & Giuliana Palumbo, 2010. "Over-optimism and lender liability in the consumer credit market," Oxford Economic Papers, Oxford University Press, vol. 62(2), pages 374-394, April.
    8. Damar, H. Evren & Lange, Ian & McKennie, Caitlin & Moro, Mirko, 2020. "Banking deregulation and household consumption of durables," IWH Discussion Papers 18/2020, Halle Institute for Economic Research (IWH).
    9. Epstein, Gil S, 2002. "Informational Cascades and Decision to Migrate," CEPR Discussion Papers 3287, C.E.P.R. Discussion Papers.
    10. 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).
    11. Berg, Tobias & Burg, Valentin & Keil, Jan & Puri, Manju, 2025. "The economics of “Buy Now, Pay Later”: A merchant’s perspective," Journal of Financial Economics, Elsevier, vol. 171(C).
    12. Rossi, Mariacristina & Trucchi, Serena, 2016. "Liquidity constraints and labor supply," European Economic Review, Elsevier, vol. 87(C), pages 176-193.
    13. Silvia Magri, 2018. "Are lenders using risk-based pricing in the consumer loan market? The effects of the 2008 crisis," Temi di discussione (Economic working papers) 1164, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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