In markets with switching costs, prices increase as firms’ market shares grow. I study the effect of entry on these price dynamics in the Dutch mortgage market. I exploit incumbents’ multi-product nature to control for unobserved firm-level differences, while a difference-indifferences strategy controls for market-level shocks by exploiting that only some mortgage products faced increased competition. Consistent with a simple theoretical framework, banks with more locked-in customers decrease their interest rates less after entry than smaller incumbents. This can explain why policies that encourage competition often disappoint in markets with switching costs. I also discuss implications for competition policy.
|Number of pages||35|
|Publication status||Published - 2020|
|Event||The 18th Annual International Industrial Organization Conference. IIOC 2020 - Northeastern University, Boston, United States|
Duration: 1 May 2020 → 3 May 2020
Conference number: 18
|Conference||The 18th Annual International Industrial Organization Conference. IIOC 2020|
|Period||01/05/2020 → 03/05/2020|