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Tobias Salz, MIT Print
Friday, 14 June 2019, 10:30 - 11:30

Tobias Salz, MIT

Auto Loan Intermediation

Abstract: This paper evaluates the intermediation of auto loans through auto dealers, using new and comprehensive administrative data. The arrangement between dealers and banks give auto dealers discretion to price the loans consumers. Our project leverages detailed knowledge of these vertical relationships between lenders and auto dealers to demonstrate that consumers are substantially less responsive to financial charges than to vehicle charges. Dealers take this consumer-specific wedge into account when jointly pricing the car and the loan. The discretion that lenders give to dealers therefore leads to a form of price discrimination. Whether or not this price discrimination is beneficial or harmful for consumers depends on the nature of this wedge. If it is mostly driven by inter-temporal consideration, such as credit constraints, dealer discretion can be welfare improving. If, instead, it is a measure of consumers' lack of financial literacy it can be harmful. Our data suggests that financial illiteracy is a more plausible explanation. In counterfactual computations we explore what happens to consumer welfare if dealers have no discretion in pricing loans.

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