Dealer Pricing of Consumer Credit

S. Hochguertel, G. Bertola, W. Koeniger

Research output: Contribution to JournalArticleAcademic

Abstract

Price discrimination incentives may induce dealers to bear the financial cost of their customers' credit purchases. We focus on how financial market imperfections make it possible to segment the customer population. When borrowing and lending rates differ from each other and from the rate of interest on a durable good purchase, the structure of those rates influences customers' choices to purchase on credit or cash terms, and the scope for dealers' price discrimination. Empirical analysis of a set of installment-credit, personal-loan, and regional interest rate data offers considerable support to the assumptions and implications of our theoretical framework.
LanguageEnglish
Pages1103-1142
Number of pages46
JournalInternational Economic Review
Volume46
DOIs
Publication statusPublished - 2005

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Consumer credit
Pricing
Dealers
Credit
Purchase
Price discrimination
Financial markets
Lending
Theoretical framework
Borrowing
Interest rates
Market imperfections
Customer choice
Costs
Cash
Loans
Empirical analysis
Incentives

Cite this

Hochguertel, S. ; Bertola, G. ; Koeniger, W. / Dealer Pricing of Consumer Credit. In: International Economic Review. 2005 ; Vol. 46. pp. 1103-1142.
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Dealer Pricing of Consumer Credit. / Hochguertel, S.; Bertola, G.; Koeniger, W.

In: International Economic Review, Vol. 46, 2005, p. 1103-1142.

Research output: Contribution to JournalArticleAcademic

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AB - Price discrimination incentives may induce dealers to bear the financial cost of their customers' credit purchases. We focus on how financial market imperfections make it possible to segment the customer population. When borrowing and lending rates differ from each other and from the rate of interest on a durable good purchase, the structure of those rates influences customers' choices to purchase on credit or cash terms, and the scope for dealers' price discrimination. Empirical analysis of a set of installment-credit, personal-loan, and regional interest rate data offers considerable support to the assumptions and implications of our theoretical framework.

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