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Information Acquisition in Competitive Markets: An Application to the US Mortgage Market

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Listed:
  • Jeremy M. Burke
  • Curtis R. Taylor
  • Liad Wagman

Abstract

How do price commitments impact the amount of information firms acquire about potential customers? We examine this question in the context of a competitive market where firms search for information that may disqualify applicants. Contracts are incomplete because the amount of information acquired cannot be observed. Despite competition, we find that firms search for too much information in equilibrium. If price discrimination is prohibited, members of high-risk groups suffer disproportionately high rejection rates. If rejected applicants remain in the market, the resulting adverse selection can be severe. We apply the results to the US mortgage market. (JEL D82, D83, D86, G21)

Suggested Citation

  • Jeremy M. Burke & Curtis R. Taylor & Liad Wagman, 2012. "Information Acquisition in Competitive Markets: An Application to the US Mortgage Market," American Economic Journal: Microeconomics, American Economic Association, vol. 4(4), pages 65-106, November.
    • Handle: RePEc:aea:aejmic:v:4:y:2012:i:4:p:65-106
    Note: DOI: 10.1257/mic.4.4.65
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
    2. Irina Kirysheva & Vladyslav Nora, 2022. "Inefficient Screening in Online Rental Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 70(3), pages 752-774, September.
    3. Brent W. Ambrose & James Conklin & Jiro Yoshida, 2016. "Credit Rationing, Income Exaggeration, and Adverse Selection in the Mortgage Market," Journal of Finance, American Finance Association, vol. 71(6), pages 2637-2686, December.
    4. Rodrigo Montes & Wilfried Sand-Zantman & Tommaso Valletti, 2019. "The Value of Personal Information in Online Markets with Endogenous Privacy," Management Science, INFORMS, vol. 65(3), pages 1342-1362, March.
    5. Changying Li & Jianhu Zhang, 2024. "Price and variety in the Salop model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(1), February.
    6. Spiegel, Yossi, 2013. "Commercial software, adware, and consumer privacy," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 702-713.
    7. David Bounie & Antoine Dubus & Patrick Waelbroeck, 2021. "Selling strategic information in digital competitive markets," RAND Journal of Economics, RAND Corporation, vol. 52(2), pages 283-313, June.
    8. Taylor, Curtis & Wagman, Liad, 2014. "Consumer privacy in oligopolistic markets: Winners, losers, and welfare," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 80-84.
    9. Jin, Ginger Zhe & Wagman, Liad, 2021. "Big data at the crossroads of antitrust and consumer protection," Information Economics and Policy, Elsevier, vol. 54(C).
    10. Jin-Hyuk Kim & Liad Wagman, 2015. "Screening incentives and privacy protection in financial markets: a theoretical and empirical analysis," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 1-22, March.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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