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State-aided Price Coordination in the Dutch Mortgage Market

Author

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  • Mark Dijkstra

    (Utrecht University)

  • Maarten Pieter Schinkel

    (University of Amsterdam)

Abstract

We show how price leadership bans, imposed as part of the European Commission's State aid control on all main mortgage providers except the largest bank, shifted the Dutch mortgage market from a competitive to a collusive price leadership equilibrium. In May 2009, mortgage rates in the Netherlands suddenly rose against the decreasing funding cost trend to almost a full percentage point above the Eurozone average. We derive equilibrium best-response functions, identify the price-leader, and estimate response adjustments in daily household mortgage rates between 2004 and 2012. Around the Spring of 2009, when the bans were collectively negotiated, we find structural decreases in the leader's cost pass-through, much closer following of its price, and strongly reduced transmissions of common cost changes into price-followers' mortgage rates. Indicative predicted overcharges are 125 basis points or 26%, on average.

Suggested Citation

  • Mark Dijkstra & Maarten Pieter Schinkel, 2019. "State-aided Price Coordination in the Dutch Mortgage Market," Tinbergen Institute Discussion Papers 19-014/VII, Tinbergen Institute, revised 13 Jul 2019.
    • Handle: RePEc:tin:wpaper:20190014
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    File URL: https://papers.tinbergen.nl/19014.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hellwig, Michael & Laser, Falk Hendrik, 2019. "Bank mergers in the financial crisis: A competition policy perspective," ZEW Discussion Papers 19-047, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    banking; competition; price leadership; collusion; State aid;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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