Journal of Competition Law and Economics Advance Access published online on February 13, 2008
Journal of Competition Law and Economics, doi:10.1093/joclec/nhm035
EMPIRICAL APPROACHES FOR IDENTIFYING MAVERICK FIRMS: AN APPLICATION TO MORTGAGE PROVIDERS IN AUSTRALIA
JEL classification: G21, L0, L4
This paper develops an empirical strategy to identify maverick-like behavior. This strategy includes measuring two behavioral dimensions: (i) the extent to which particular suppliers underprice rivals; and (ii) the timing of the suppliers' responses to systemic cost changes. This strategy is applied to a dataset that contains interest rates charged by mortgage providers in Australia from January 2003 to October 2006. We then evaluate suppliers' behavior both in terms of the rates that they charge and the time it takes them to change their rates as a response to a systemic increase in costs that follows a change of the cash rate by the Reserve Bank of Australia (RBA). We find that systematic price discounts and the frequency and timing of price increases and decreases are both important, but distinct, components of maverick-like behavior. These empirical observations suggest that the development of a theory for maverick behavior be focused on dynamic, asymmetric models and informed by institutions and market dynamics that are relevant to the case at hand.
* Associate Professor, The Australian National University. E-mail: Robert.Breunig{at}anu.edu.au
** Professor of Economics, The University of Queensland. E-mail: F.menezes{at}uq.edu.au. Both authors acknowledge the financial support of the ARC (grants DP 0557885 (Menezes) and 0663768 (Breunig and Menezes)). We are grateful to CANNEX for providing us with the data. We thank seminar participants at the 2007 Australian Law and Economics Conference and the 2007 Australian Meeting of the Econometric Society. The usual disclaimers apply.