Steven Ongena , Florentina Paraschiv , Endre J. Reite
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Abstract
This study analyzes price discrimination and household switching in the residential mortgage market. Using a unique proprietary micro dataset from Norway, we examine the factors that influence a bank’s choice to counter an offer from a competing bank and the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the concurrent best rate offered to new customers by the current bank. The estimates show that a bank employs internal information to decide how to counter a competing offer and that current clients pay approximately 20 basis points more than new customers. We surmise that new regulations and digitalization enhance transparency and can reduce the rate differential. However, introducing new banking products and changes in the timing of rate differentiation —from immediate upfront to gradually over time —may be used to maintain a constant rate differential.
期刊介绍：
The Journal of Empirical Finance is a financial economics journal whose aim is to publish high quality articles in empirical finance. Empirical finance is interpreted broadly to include any type of empirical work in financial economics, financial econometrics, and also theoretical work with clear empirical implications, even when there is no empirical analysis. The Journal welcomes articles in all fields of finance, such as asset pricing, corporate finance, financial econometrics, banking, international finance, microstructure, behavioural finance, etc. The Editorial Team is willing to take risks on innovative research, controversial papers, and unusual approaches. We are also particularly interested in work produced by young scholars. The composition of the editorial board reflects such goals.
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