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  3. American Economic Review
  4. October 2014
  5. The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry

The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry

  • Jason Allen
  • Robert Clark
  • Jean-François Houde
American Economic Review
vol. 104, no. 10, October 2014
(pp. 3365-96)
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Abstract

We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation weakens consumers' bargaining positions. We use reduced-form techniques to estimate the mergers' distributional impact, and show that competition benefits only consumers at the bottom and middle of the transaction price distribution, and that mergers reduce the dispersion of prices. We illustrate that these effects can be explained by the presence of search frictions, and that the average effect of mergers on rates underestimates the increase in market power.

Citation

Allen, Jason, Robert Clark, and Jean-François Houde. 2014. "The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry." American Economic Review, 104 (10): 3365-96. DOI: 10.1257/aer.104.10.3365

Additional Materials

JEL Classification

  • G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
  • G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
  • K21 Antitrust Law
  • L13 Oligopoly and Other Imperfect Markets
  • L41 Monopolization; Horizontal Anticompetitive Practices