Monopoly and Information Advantage in the Residential Mortgage Market

• 成果类型: Article
• 署名作者: Gan, Jie; Riddiough, Timothy J.
• 署名单位: Hong Kong University of Science & Technology; University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/revfin/hhm005
• 发表日期: 2008
• 页码: 2677
• 关键词: competition

摘要

Information advantage and entry deterrence incentives are investigated as they affect lending outcomes and competitive structure of the U. S. residential mortgage market. In the model, when assessing a loan applicant, the incumbent monopoly lender employs a proprietary screening technology to produce a privately observed estimate of loan credit quality. When faced with potential competitive entry, the incumbent signals poor credit quality by charging high prices to higher-quality borrowers. Market structure and loan pricing strategy are derived endogenously, where the incumbent deters entry first by segmenting consumers into prime and sub-prime loan markets and second by charging prime market borrowers a uniform rate that is higher than the risk-based monopoly rate. Empirical implications of the model are identified, and evidence is presented that is consistent with predictions.