Artikkelens sammendrag (Abstract) gir en oversikt over artikkelen tematikk.
Abstract: This paper analyses the interaction between a newcomer that does not maximise profit and an established profit maximising competitor in a mortgage market with Bertrand competition. The newcomer enters the market while, compared to the established mortgagor, offering mortgages with (i) lower mortgage rates and (ii) different LTV-ratios. The lower mortgage rate allows the newcomer a customer base. The newcomer’s pricing strategy places the established mortgagor in a strategically favourable market position and ensures it a higher interest rate margin unless the newcomer has a funding cost advantage. The newcomer’s inability to pass-through its funding cost to the mortgage rate illustrates the short-term nature of this populistic pricing rule. Mortgage differentiation has a positive impact on the interest rate margin of both market players. At a given level of differentiation the interest rate margin of the newcomer might exceed that of the established mortgagor when the former has a funding cost advantage. For niche banks entering the mortgage market without a funding cost advantage there is a critical price mirroring rate that ensures a higher interest rate margin. The non-profit maximising pricing rule, and the asymmetric funding cost effect that follows, allows opposite effects on the price mirroring rate from the two funding costs. The higher the funding cost of the established mortgagor the lower is the newcomer’s price mirroring rate and the tougher is mortgage market competition during entry.