State-aided Price Coordination in the Dutch Mortgage Market

Abstract

We show how price leadership bans, imposed as part of the European Commission's State aid control on all main mortgage providers except the largest bank, shifted the Dutch mortgage market from a competitive to a collusive price leadership equilibrium. In May 2009, mortgage rates in the Netherlands suddenly rose against the decreasing funding cost trend to almost a full percentage point above the Eurozone average. We derive equilibrium best-response functions, identify the price-leader, and estimate response adjustments in daily household mortgage rates between 2004 and 2012. Around the Spring of 2009, when the bans were collectively negotiated, we …nd structural decreases in the leader's cost pass-through, much closer following of its price, and strongly reduced transmissions of common cost changes into price-followers' mortgage rates. Indicative predicted overcharges are 125 basis points or 26%, on average.

Bank Mergers in the Financial Crisis – A Competition Policy Perspective

“…This assumption can be challenged not only because of the merger itself but also the involvement of state aid with its behavioral restrictions. Evidence by Dijkstra and Schinkel (2019) suggests that the price leadership bans, which also applied to other state-aided Dutch banks, shifted the Dutch mortgage market from a competitive to a fully collusive price leadership equilibrium. Although the price leadership bans were also targeted at the savings market, we argue that the markets for savings and mortgages are different.…”

“…16 Mortgages do not serve a savings purpose; consumers use them to finance home purchases. Pricing of the price leader is (barometrically) based on the nearest rival's funding costs -a particularity that the largest non-aided bank Rabobank seems to have abused when the price leadership bans on its closest followers emerged (Dijkstra & Schinkel, 2019). In the savings market, in contrast, pricing is driven by the banks' motivation to raise funding required to issue loans (besides e.g.…”