| The Electronic Market Hypothesis ("EMH"), developed by Malone, Yates and Benjamin in 1987, sets forth the base theory that the introduction of electronic delivery mechanisms will reduce consumer search costs and result in greater consumer reliance on markets, rather than hierarchies. Bakos (1991) further enhanced this hypothesis with his belief that "under virtually any assumptions about the nature of the market and the search process, electronic marketplaces are likely to destabilize profitable monopolistic outcomes, thereby reducing seller profits and increasing buyer welfare." Salop and Stiglitz further suggested a mixed price equilibrium in which certain sellers charge high prices to take advantage of buyers with high search costs. Buyers with low search costs induce the entry of low-priced sellers.;The mortgage origination markets are currently bifurcated between those with high search costs (reliant on brick & mortar originators) and those with low search costs (reliant on electronic delivery vehicles). Most mortgage originations currently come from traditional brick & mortar avenues, while a growing percentage come from electronic distribution channels (Hess, Kemerer and Chris).;This paper researched whether mortgage prices, and the dispersion of mortgage prices among lenders, differ between electronic distribution and traditional brick & mortar channels. Four fixed rate mortgage products were studied: conventional 15 year, jumbo 15 year, conventional 30 year, and jumbo 30 year mortgages.;The research results were mixed. Prices for three of the mortgage products were significantly different between the two channels while the fourth was not. Likewise, dispersion measures between the two channels were significantly different for three products out of the four tested.;These mixed results may demonstrate Grover & Ramanlal's assertion that retailers are unlikely to allow consumer surplus to migrate to the benefit of the consumer without exploring mitigating strategies. Through withholding of relevant information, providing information in a manner that makes it difficult for consumers to compare products, offering highly customized versions of the products, and other confounding strategies, mortgage originators may be successfully resisting the hypothesized destabilization of profitable monopolistic outcomes. |
