nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒09‒03
twenty-six papers chosen by
Russell Pittman
United States Department of Justice

  1. Certification, Reputation and Entry: An Empirical Analysis By Xiang Hui; Maryam Saeedi; Giancarlo Spagnolo; Steven Tadelis
  2. Global Market Power By Jan De Loecker; Jan Eeckhout
  3. Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market By Sara Fisher Ellison; Christopher Snyder; Hongkai Zhang
  4. Firm-to-Firm Relationships and Price Rigidity: Theory and Evidence By Sebastian Heise
  5. Exchange-rate exposure in a “Rule of Three” Model By Andrikopoulos, A.; Dassiou, X.
  6. Cartel Stability under Quality Differentiation By Bos, Iwan; Marini, Marco A.
  7. Debarment and Collusion in Procurement Auctions By Claudia Cerrone; Author-Name: Yoan Hermstruwer
  8. Market Integration, Demand and the Growth of Firms: Evidence from a Natural Experiment in India By Robert T. Jensen; Nolan H. Miller
  9. The Impact of Chinese Competition along the Quality Ladder By Paul Piveteau; gabriel smagghue
  10. Does Market Competition Dampen Environmental Performance? Evidence from China By Duanmu, Jing-Lin; Bu, Maoliang; Pittman, Russell
  11. Vertical Structure and the Risk of Rent Extraction in the Electricity Industry By Boom, Anette; Buehler, Stefan
  12. Imperfect Competition in Electricity Markets with Renewable Generation: The Role of Renewable Compensation Policies By Brown, David P.; Eckert, Andrew
  13. Welfare Effects of Open-Access Competition on Railway Markets By Broman, Emanuel; Eliasson, Jonas
  14. Restructuring the Chinese Freight Railway: Two Scenarios By Cui, Shana; Pittman, Russell; Zhao, Jian
  15. Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry By Newham, M.; Seldeslachts, J.; Banal-Estanol, A.
  16. Tokenomics: Dynamic Adoption and Valuation By Cong, Lin William; Li, Ye; Wang, Neng
  17. Characterization, Existence, and Pareto Optimality in Insurance Markets with Asymmetric Information with Endogenous and Asymmetric Disclosures: Revisiting Rothschild-Stiglitz By Joseph E. Stiglitz; Jungyoll Yun; Andrew Kosenko
  18. Spatial competition with demand uncertainty: A laboratory experiment By Bonein, Aurélie; Turolla, Stéphane
  19. Collective Reputation in Online Platforms and Private Quality Standards By McCluskey, Jill J.; Winfree, Jason A.
  20. Customer Sharing in Economic Networks with Costs By Bin Li; Dong Hao; Dengji Zhao; Tao Zhou
  21. Investments under vertical relations and agency conflicts: a real options approach By Dimitrios Zormpas
  22. Industry rates of return in Korea and alternative theories of competition: equalising convergence versus tendential equalisation By Trofimov, Ivan D.
  23. Dynamic Nash Bargaining Solution for Two-stage Network Games By Junnan, Jie
  24. Price Discrimination in Online Retail By Hindermann, Christoph Michael
  25. An Economic Model of the Evolution of Food Retail and Supply Chains from Traditional Shops to Supermarkets to e-Commerce By Lu, Liang; Reardon, Thomas
  26. Bank Competition, Risk Taking, and their Consequences: Evidence from the U.S. Mortgage and Labor Markets By Alan Xiaochen Feng

  1. By: Xiang Hui; Maryam Saeedi; Giancarlo Spagnolo; Steven Tadelis
    Abstract: Markets with asymmetric information will often employ third-party certification labels to distinguish between higher and lower quality transactions, yet little is known about the effects of certification policies on the evolution of markets. How does the stringency in quality certification affect the intensity and composition of entry, incumbents' reactions, and market outcomes? We use detailed administrative data and exploit a policy change on eBay to explore how a more selective certification policy affects entry and behavior across a rich set of online market segments. We find that after the policy change, entry increases and does so more intensely in markets where it is harder to become certified. The average quality of entrants also increases more in the more affected markets, while the quality distribution of entrants exhibits fatter tails ex post. Finally, some incumbents increase the quality of their service to maintain certification and deliver higher quality after the policy change. The results help inform the design of certification policies in electronic and other markets with asymmetric information.
    JEL: D82 L15 L86
    Date: 2018–08
  2. By: Jan De Loecker; Jan Eeckhout
    Abstract: To date, little is known about the evolution of market power for the economies around the world. We extract data from the financial statements of over 70,000 firms in 134 countries, and we analyze and document the evolution of markups over the last four decades. We show that the average global markup has gone up from close to 1.1 in 1980 to around 1.6 in 2016. Markups have risen most in North America and Europe, and least in emerging economies in Latin America and Asia. We discuss the distributional implications of the rise in global market power for the labor share and for the profit share.
    JEL: E0 K0 L0
    Date: 2018–06
  3. By: Sara Fisher Ellison; Christopher Snyder; Hongkai Zhang
    Abstract: We study price dynamics for computer components sold on a price-comparison website. Our fine-grained data—a year of hourly price data for scores of rival retailers—allow us to estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. We use our model to simulate the counterfactual gains from automated price setting and other managerial changes. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics.
    JEL: L11
    Date: 2018–06
  4. By: Sebastian Heise (Federal Reserve Bank of New York)
    Abstract: Economists have long suspected that firm-to-firm relationships might increase price rigidity due to the use of explicit or implicit fixed-price contracts. Using transaction-level import data from the U.S. Census, I study the responsiveness of prices to exchange rate changes and show that prices are in fact substantially more responsive to these cost shocks in older versus newly formed relationships. Based on additional stylized facts about price setting and trading volumes throughout a relationship's life cycle, I develop a model of relationship dynamics in which a buyer and a seller interact repeatedly under limited commitment and accumulate relationship capital in proportion to sales to lower production costs. In a new relationship, capital is low, and the seller responds little to shocks and sets low mark-ups to incentivize the buyer to maintain the association and to build up relationship capital. These motives are weaker in old relationships, which on average have more capital, increasing the price response to shocks and raising mark-ups. Once structurally estimated, the model generates countercyclical mark-ups and countercyclical pass-through of shocks through variation in the economy's average relationship length, which rises in recessions.
    Date: 2018
  5. By: Andrikopoulos, A.; Dassiou, X.
    Abstract: We examine exchange-rate exposure in an international Bertrand model of differentiated goods using a “Rule of Three” (RoT) market structure that allows both within and between countries competition. We construct two versions of our model, a static and a dynamic one. In the latter, we explore how the intertemporal effects of exchange rates on the optimal prices of a firm’s domestic and international rivals will affect a firm’s long-run exposure in relation to its short-run exposure. We find that in the static version, the addition of a domestic competitor increases the firm’s exposure, while the effect on its foreign competitor is ambiguous. In the dynamic case, we find that the gap in exposure between the RoT model and the international duopoly case is larger in the long run than in the short run for the company facing a domestic rival, while the exposure for that firm can be either smaller or larger in the long run relative to the short run. Finally, the firm that remains a monopolist in its domestic market has a smaller exposure in the long run as compared to the short run.
    Keywords: Oligopoly Market Structure; Bertrand Model; Foreign Exchange; Long-Run Exposure; Short-Run Exposure
    Date: 2018
  6. By: Bos, Iwan; Marini, Marco A.
    Abstract: This note considers cartel stability when the cartelized products are vertically differentiated. If market shares are maintained at pre-collusive levels, then the firm with the lowest competitive price-cost margin has the strongest incentive to deviate from the collusive agreement. The lowest-quality supplier has the tightest incentive constraint when the difference in unit production costs is sufficiently small.
    Keywords: Cartel Stability, Collusion, Vertical Differentiation, Price Collusion.
    JEL: D2 D4 D43 L1 L4
    Date: 2018–07–31
  7. By: Claudia Cerrone (Max Planck Institute for Research on Collective Goods); Author-Name: Yoan Hermstruwer (Max Planck Institute for Research on Collective Goods; Competition Authority, Lisboa, Portugal)
    Abstract: This paper explores the impact of debarment as a deterrent of collusion in first-price procurement auctions. We develop a procurement auction model where bidders can form bidding rings, and derive the bidding and collusive behavior under no sanction, debarment and fines. The model's predictions are tested through a lab experiment. We find that debarment and fines both reduce collusion and bids. The deterrent effect of debarment increases in its length. However, the debarment of colluding bidders reduces effciency and increases the bids of non-debarred bidders. The latter suggests that the market size reduction resulting from debarment may trigger tacit collusion.
    Keywords: debarment, collusion, procurement auctions, procurement law, sanctions
    JEL: C92 D03 D44 K21 K42
    Date: 2018–04
  8. By: Robert T. Jensen; Nolan H. Miller
    Abstract: In many developing countries, the average firm is small, does not grow and has low productivity. Lack of market integration and limited information on non-local products often leave consumers unaware of the prices and quality of non-local firms. They therefore mostly buy locally, limiting firms’ potential market size (and competition). We explore this hypothesis using a natural experiment in the Kerala boat-building industry. As consumers learn more about non-local builders, high quality builders gain market share and grow, while low quality firms exit. Aggregate quality increases, as does labor specialization, and average production costs decrease. Finally, quality-adjusted consumer prices decline.
    JEL: O10 O12
    Date: 2018–06
  9. By: Paul Piveteau (Johns Hopkins University); gabriel smagghue (uc3m)
    Abstract: We investigate the impact of Chinese competition faced by French exporters in their destination markets. We document that French firms with low prices are significantly more affected by the rise of China in international markets. To rationalize this finding, we propose a random coefficient, discrete choice model of demand in which consumers have heterogeneous preferences regarding product characteristics and prices. This heterogeneity in preferences implies more realistic substitution patterns across producers relative to existing trade models. In particular, it allows for French varieties located at the bottom of the price distribution to be closer substitutes to Chinese goods, due to their proximity in the product space. Using firm-level trade data, we estimate the model and quantify the unequal effect of China across French exporters in the footwear industry, between 1997 and 2010. We find substantial differences across firms: the rise in Chinese exports implied losses in market shares five times larger at the bottom of the price distribution relative to the top. Moreover, we show that allowing French firms to adjust their product quality does little to help them escape Chinese competition.
    Date: 2018
  10. By: Duanmu, Jing-Lin; Bu, Maoliang; Pittman, Russell
    Abstract: Departing from the extant literature which assumes that firms pursue strong environmental performance as a differentiation strategy, we analyse the general relationship between firms’ competitive strategy and their response to heightened market competition. We find that, using a large sample of Chinese manufacturing firms between 2000 and 2005, intensified market competition has an overall negative impact on firms’ environmental performance. The negative impact is exacerbated in firms adopting a cost-leadership strategy, but attenuated in those adopting a differentiation strategy. The results emphasize the importance of including an examination of the particular competitive strategies chosen by firms in seeking to understand the impact of intensified market competition.
    Keywords: Market competition, environmental performance, China, corporate social responsibility, cost leadership, differentiation, market concentration
    JEL: L11 L13 L21 L25 M14 M31 Q52 Q56
    Date: 2018–04–18
  11. By: Boom, Anette (Department of Economics, Copenhagen Business School); Buehler, Stefan
    Abstract: This paper studies how competition and vertical structure jointly determine generating capacities, retail prices, and welfare in the electricity industry. Analyzing a model in which demand is uncertain and retailers must commit to retail prices before they buy electricity in the wholesale market, we show that welfare is highest if competition in generation and retailing is combined with vertical separation. Vertically integrated generators choose excessively high retail prices and capacities to avoid rent extraction in the wholesale market when their retail demand exceeds their capacity. Vertical separation eliminates the risk of rent extraction and yields lower retail prices.
    Keywords: Electricity; Generating Capacities; Vertical Integration; Monopoly; Competition
    JEL: D42 D43 D44 L11 L12 L13
    Date: 2018–08–23
  12. By: Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics)
    Abstract: We analyze the effects of commonly employed renewable compensation policies on firm behavior in an imperfectly competitive market. We consider a model where firms compete for renewable capacity in a procurement auction prior to choosing their forward contract positions and competing in wholesale electricity markets. We focus on fixed and premium-priced feed-in tariff (FIT) compensation policies. We demonstrate that the renewable compensation policy impacts both the types of resources that win the renewable auction and subsequent market competition. While firms have stronger incentives to exercise market power in wholesale markets under a premium-priced FIT, they also have increased incentives to sign pro-competitive forward contracts. Despite these countervailing incentives, in net firms have stronger incentives to exercise market power under the premium-priced policy. We find conditions under which renewable resources that are more correlated with market demand are procured under a premium-priced design, while the opposite occurs under a fixed-priced policy. If the cost efficiencies associated with the "more valuable" renewable resources are sufficiently large, then welfare is larger under the premium-priced policy despite the stronger market power incentives in the wholesale market. Finally, we consider incumbent behavior in the renewable auction when competing against entrants with more valuable resources.
    Keywords: Electricity; Renewables; Market Power; Regulation; Procurement
    JEL: D43 L40 L51 L94 Q48
    Date: 2018–08–24
  13. By: Broman, Emanuel (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Eliasson, Jonas (City of Stockholm Traffic Department)
    Abstract: In recent years, several countries have deregulated passenger railway markets to allow open access. The aim is for competition to lower fares and increase quality of service, thereby increasing demand, economic efficiency and overall social welfare. In this paper, we use a stylised simulation model to study how open access competition affects fares, demand, supply, consumer surplus and operator profits compared to a profit-maximising monopoly and to a welfare-maximising benchmark situation. We conclude that aggregate social welfare increases substantially when going from profit-maximising monopoly to duopoly competition, as consumers make large gains while operators’ profits fall. According to simulations, there generally exists a stable competitive Nash equilibrium with two or more profitable operators. Although operators are identical in the model setup, the Nash equilibrium outcome is asymmetric: one operator has more departures and higher average fares than the other. If operators are allowed to collude, however, for example by trading or selling departure slots, the equilibrium situation tends to revert to monopoly: it will be profitable for one operator to buy the other’s departure slots to gain monopoly power. The regulatory framework must therefore prevent collusion and facilitate market entry. Even the potential for competitive entry tends to increase social welfare, as the monopolist has incentives to increase supply as an entry deterrence strategy.
    Keywords: open access; rail reform; capacity allocation; passenger
    JEL: D43 R41 R48
    Date: 2018–08–23
  14. By: Cui, Shana; Pittman, Russell; Zhao, Jian
    Abstract: Twenty years of debate regarding the restructuring of the Chinese freight railway have failed to yield a consensus. Early policy statements favoring the creation of above-the-rail competition over a monopoly infrastructure – the “European” model of rail restructuring – have broadened into a lively policy and scholarly debate that includes as an alternative the division of the system into competing vertically integrated railways – the “Americas” model of restructuring. To date, however, there have been no tangible reform steps beyond organizational restructuring, the construction of new coal railroads, some with private-sector participation, and the introduction of scheduled service, especially for containers, between China and Europe. In this paper we argue in favor of the Americas model as a basis for restructuring and offer two alternative scenarios for the creation of multiple vertically integrated freight railways. Both plans enable competition between independent firms and routes for import/export traffic, one a southern, One Belt/One Road path, the other a northern path via the Trans-Siberian Railway.
    Keywords: Freight railway, restructuring, competition, vertical separation, horizontal separation, China
    JEL: L14 L33 L43 L92 O18 R42
    Date: 2018–06–25
  15. By: Newham, M.; Seldeslachts, J.; Banal-Estanol, A.
    Abstract: Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn a lot of attention from scholars and practitioners alike. Theoretical and empirical research suggests that common ownership can lead to higher prices. This paper focuses on implications for market entry. To estimate the effect of common ownership on entry decisions, we focus on the pharmaceutical industry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We first provide a theoretical framework that shows that a higher level of common ownership between the brand firm (incumbent) and potential generic entrant reduces the generic's incentives to entry. We provide robust evidence for this prediction. The effect is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic theoretical framework and allow for multiple entrants. Our model shows that for sufficiently high levels of common ownership, the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements. Our empirical results provide some support for these predictions.
    Keywords: Market Entry; Ownership Structure; Pharma
    Date: 2018
  16. By: Cong, Lin William (U of Chicago); Li, Ye (Oh State U); Wang, Neng (Columbia U and China Academy of Financial Research)
    Abstract: We provide a dynamic asset-pricing model of (crypto-)tokens on (blockchain-based) platforms, and highlight their roles on endogenous user adoption. Tokens intermediate transactions on decentralized networks, and their trading creates an inter-temporal complementarity among users, generating a feedback loop between token valuation and platform adoption. Consequently, tokens capitalize future platform growth, accelerate adoption, and reduce user-base volatility. Equilibrium token price increases non-linearly in platform productivity, user heterogeneity, and endogenous network size. The model also produces explosive growth of user base after an initial period of dormant adoption, accompanied by a run-up of token price volatility. We further discuss how our framework can be used to discuss cryptocurrency supply, token competition, and pricing assets under network externality.
    JEL: C73 E42 F43 L86
    Date: 2018–03
  17. By: Joseph E. Stiglitz; Jungyoll Yun; Andrew Kosenko
    Abstract: We study the Rothschild-Stiglitz model of competitive insurance markets with endogenous information disclosure by both firms and consumers. We show that an equilibrium always exists, (even without the single crossing property), and characterize the unique equilibrium allocation. With two types of consumers the outcome is particularly simple, consisting of a pooling allocation which maximizes the well-being of the low risk individual (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk individual to full insurance (at his own odds). We show that this outcome is extremely robust and Pareto efficient.
    JEL: D82 D83
    Date: 2018–06
  18. By: Bonein, Aurélie; Turolla, Stéphane
    Abstract: Motivated by recent research on product differentiation, we conduct laboratory experiments to study how (aggregate) demand uncertainty influences location choices and price competition in the original Hotelling (1929)’s model. We provide new predictions on the effect of risk attitudes on both decisions under demand uncertainty and confront them with the data. Our experimental results support the predictions that demand uncertainty acts as a differentiation force for risk-neutral and risk-lover subjects. By contrast, we do not verify that demand uncertainty leads risk-averse subjects to agglomerate. This is explained primarily by learning effects and heterogeneous behaviors within this risk profile. Finally, we observe various price-setting behaviors, ranging from an attempt to collude to a price war, depending on the level of differentiation.
    Keywords: International Relations/Trade
    Date: 2017–12–20
  19. By: McCluskey, Jill J.; Winfree, Jason A.
    Abstract: This article provides a conceptual framework to understand benets and costs of private minimum quality standards, increasing seller reputation or warranties when there is a collective reputation for online platforms. Our framework uses a dual reputation model where consumers have a quality expectation based on the reputation of the platform and the reputation of the seller. We also analyze the benets and costs of various types of fees associated with online platforms. We nd that the optimal fee structure may depend upon weighing quality concerns with market power concerns. The optimal quality standard may also depend upon the fee structure, as well as the level of compliance to that standard.
    Keywords: Demand and Price Analysis, Financial Economics
    Date: 2017–12–17
  20. By: Bin Li; Dong Hao; Dengji Zhao; Tao Zhou
    Abstract: In an economic market, sellers, infomediaries and customers constitute an economic network. Each seller has her own customer group and the seller's private customers are unobservable to other sellers. Therefore, a seller can only sell commodities among her own customers unless other sellers or infomediaries share her sale information to their customer groups. However, a seller is not incentivized to share others' sale information by default, which leads to inefficient resource allocation and limited revenue for the sale. To tackle this problem, we develop a novel mechanism called customer sharing mechanism (CSM) which incentivizes all sellers to share each other's sale information to their private customer groups. Furthermore, CSM also incentivizes all customers to truthfully participate in the sale. In the end, CSM not only allocates the commodities efficiently but also optimizes the seller's revenue.
    Date: 2018–07
  21. By: Dimitrios Zormpas
    Abstract: We examine the case of a firm holding the option to make an uncertain and irreversible investment. The firm is decentralized and there is information asymmetry between the owner and the investment manager regarding the price of an input (e.g. a key equipment) that needs to be purchased by an outside supplier with market power. We show that the total loss attributed to the information asymmetry has two components: i) the loss in the decentralized firm itself and ii) a negative externality that the outside input supplier endures. We show that the latter is likely not just a part, but rather the main component of the total loss. Last, we prove that the negative externality is reduced when the principal uses an audit technology in parallel with the bonus-incentive mechanism.
    JEL: D82 L10
    Date: 2018–08–22
  22. By: Trofimov, Ivan D.
    Abstract: This paper considers convergence and equalisation in industry profit rates in the Republic of Korea in the period of 1970–2015, from the perspective of alternative paradigms of competition – classical and neoclassical. Two measures of profitability are estimated: average rate of profit based on the total capital stock in the economy, and incremental rate of profit (IROP) based on the concept of regulating capital. It is shown that little convergence in industry rates of profit occur when the former measure is used, while almost complete equalisation of IROP is achieved. The classical-type equalisation takes place in particular capital accumulation and competitive settings in Korea, characterised by the prominent role of diversified conglomerate firms, the capital flows within conglomerates, investment coordination by the state, and the fast pace of capital accumulation and renewal).
    Keywords: Convergence, gravitation, average profit rate, incremental profit rate, unit roots
    JEL: B5 C22 L0 L60 L70 L90
    Date: 2018–08–08
  23. By: Junnan, Jie
    Abstract: In Contributions to game theory and management, vol. XI. Collected papers presented on the Eleventh International Conference Game Theory and Management / Editors Leon A. Petrosyan, Nikolay A. Zenkevich. - SPb.: Saint Petersburg State University, 2018. - 330 p. The collection contains papers accepted for the Eleventh International Game Theory and Management (June 28-30, 2017, St. Petersburg State University, St. Petersburg, Russia).
    Keywords: network, time-consistency, Nash Bargaining solution,
    Date: 2018
  24. By: Hindermann, Christoph Michael
    Abstract: Although newspapers and online blogs provide a variety of anecdotal evidence for price discrimination, they are mostly not based on a scientific and systematic approach. This survey gives a short overview of scientific price discrimination studies in online retail. At first, it contains a short methodological part which shows how price discrimination can be detected. Thereafter, the results of different price discrimination studies are presented, showing that the prevalence of price discrimination varies across studies. Studies who analyze only ‘popular’ websites find a higher rate of prevalence than studies focusing also on ‘unpopular’ websites. As far as scientific evidence is available, online prices hinge on user-based, technical, and location-based features. The dispersion of the price seems to be largest when firms discriminate between users from different countries. Finally, potential reasons why price discrimination is not applied by all retailers are given.
    Keywords: Price Discrimination,Online Retail,Price Differentiation,Pricing
    JEL: D40 M20
    Date: 2018
  25. By: Lu, Liang; Reardon, Thomas
    Abstract: Food retail has been in continuous evolution for the past century, both in developing and developed countries: from local traditional stores to supermarkets to e-commerce. In this paper we analyze the evolution of food retail by building a store choice equilibrium model and provide an illustrated discussion. The patterns in retail in any given time and place of different types of stores (such as traditional shops, supermarkets, and online e-commerce) depend on two main factors. The first are consumers’ characteristics such as income, tastes, and travel costs of going to different stores and/or shipping costs if purchasing online. The second are the stores’ cost structures, which include item costs from upstream producers, the costs of procurement supply chains (beyond the cost of the item) for perishable items, and the costs of in-store storage. We show under what conditions in equilibrium the different retail types exist and which can become dominant, and what types of goods (dry packaged foods versus perishables) are distributed by what type of retailers.
    Keywords: Food Consumption/Nutrition/Food Safety, Food Security and Poverty
    Date: 2017–12–21
  26. By: Alan Xiaochen Feng
    Abstract: Bank competition can induce excessive risk taking due to risk shifting. This paper tests this hypothesis using micro-level U.S. mortgage data by exploiting the exogenous variation in local house price volatility. The paper finds that, in response to high expected house price volatility, banks in U.S. counties with a competitive mortgage market lowered lending standards by twice as much as those with concentrated markets between 2000 and 2005. Such risk taking pattern was associated with real economic outcomes during the financial crisis, including higher unemployment rates in local real sectors.
    Date: 2018–07–06

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