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Per-customer quantity limit and price discrimination: Evidence from the U.S. residential mortgage market

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  • Ma, Chao

Abstract

Theoretically, if firms face a regulatory per-customer quantity limit, they should have an incentive to discriminatively charge high-demand customers higher prices and make them just willing to buy a quantity equal to the limit. In the U.S. residential mortgage industry, mortgages with origination balances above the conforming loan limits cannot be guaranteed by government-sponsored enterprises, which make lenders face a per-customer quantity limit. This paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination. This study rules out the alternative explanation that those borrowers are of higher risk (lending cost) than other borrowers.

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  • Ma, Chao, 2020. "Per-customer quantity limit and price discrimination: Evidence from the U.S. residential mortgage market," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:indorg:v:70:y:2020:i:c:s0167718720300102
    DOI: 10.1016/j.ijindorg.2020.102588
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    More about this item

    Keywords

    Price discrimination; Quantity limit; Mortgage; Financial institution; Bunching;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L8 - Industrial Organization - - Industry Studies: Services
    • G2 - Financial Economics - - Financial Institutions and Services
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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