C. Robert Clark

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

This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of a merger therefore is to reduce the number of partners available with whom to negotiate, although it can also change the characteristics of the product, and impact the search effort of consumers. Using a Canadian merger as a case study, we find that, overall, consolidation had little effect on rates suggesting that, on average, the mortgage market is fairly competitive. However, a decomposition of the aggregate treatment effect reveals important heterogeneity in the impact of the merger. We find that consumers gathering multiple quotes are affected by the merger, while those who do not search are not. These results suggest that market power originates in large part from the presence of asymmetric search costs.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 eliminates a potential negotiation part- ner, weakening consumers bargaining positions. We combine reduced-form techniques to es- timate the mergers distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.

Search Frictions and Market Power in Negotiated Price Markets

We provide a framework for empirical analysis of negotiated-price markets. Using mortgage market data and a search and negotiation model, we characterize the welfare impact of search frictions and quantify the role of search costs and brand loyalty for market power. Search frictions reduce consumer surplus by

A model of advertising format competition: on the use of celebrities in ads

12/month/consumer, 28 percent of which can be associated with discrimination, 22 percent with inefficient matching, and 50 percent with search costs. Banks with large consumer bases have margins 70 percent higher than those with small consumer bases. The main source of this incumbency advantage is brand loyalty; however, price discrimination based on search frictions accounts for almost a third.This paper measures market power in a decentralized market where contracts are determined through a search and negotiation process. The mortgage industry has many institutional features which suggest competitiveness: homogeneous contracts, negotiable rates, and, for a given consumer, common lending costs across lenders. As a result, even with a small number of lenders, informed borrowers can gather multiple quotes. However, there is important heterogeneity in the ability of consumers to understand the subtleties of financial contracts, in their ability or willingness to search and negotiate for quotes, and also in their degree of loyalty to their main financial institution. We propose and estimate a model to disentangle the different channels through which market power can arise for a given transaction in this environment. There are two main sources of market power. The first is search frictions. We find that over the five year period of the contract the average search cost corresponds to an upfront sunk cost of between

Can't Buy Me Love: Investigating the Effect of Advertising on Brand Awareness and Perceived Quality Using Panel Data

1,047 and

The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data

1,590. The second main source of market power is switching costs. We estimate that consumers are willing to pay between

The Effect of Explicit Communication on Pricing: Evidence from the Collapse of a Gasoline Cartel

759 and

Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act

1,617 upfront to avoid having to switch banks.

Advertising and Coordination in Markets with Consumption Scale Effects

We develop a model that endogenizes both advertising format ads with or without celebrity endorsements and the endorsement fee. Marketing studies suggest that celebrities enhance brand recall and perception of product value. In our model, ads featuring celebrities occur when the product market is large endorsements are likely for products sold nationally and when products are sufficiently similar that the persuasive character of advertising looms large in demand running shoes, beauty products, soft drinks, for example. Celebrity endorsement fees are increasing in market size and in the degree of similarity of the products being advertised.

Price Controls and Market Structure: Evidence from Gasoline Retail Markets

We use a panel data set that combines annual brand-level advertising expenditures for over three hundred brands with measures of brand awareness and perceived quality from a large-scale consumer survey to study the effect of advertising. Advertising is modeled as a dynamic investment in a brands stocks of awareness and perceived quality and we ask how such an investment changes brand awareness and quality perceptions. Our panel data allow us to control for unobserved heterogeneity across brands and to identify the effect of advertising from the time-series variation within brands. They also allow us to account for the endogeneity of advertising through recently developed dynamic panel data estimation techniques. We find that advertising has consistently a significant positive effect on brand awareness but no significant effect on perceived quality.