Determinants of Price Discrimination and Switching Mortgage Provider Under Regulation and Digitalization

This study analyzes price discrimination and household switching in the residential mortgage market. Using a unique proprietary micro dataset from Norway, we examine the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the best rate being offered to new customers by the current bank at the same time. The results show that current clients pay around 20 basis points more than new customers are offered; however, this rate differential is kept in check by the existing clients switching or accepting counter-offers from the home bank. New regulations and digitalization enhance transparency; that is, they can reduce the rate differential, but the introduction of new banking products as well as changes in the timing of rate differentiation ̶ from immediate upfront to gradually over time ̶ may be used to keep the differential constant