Are prices ‘sticky’ online? Market structure effects and asymmetric responses to cost shocks in online mortgage markets

We analyze daily mortgage rates posted by online lenders at the price comparison site, Microsurf. While cost shocks occurred almost daily in our sample, quoted mortgage rates are surprisingly rigid: Only 16% of the posted rates represent changes. However, firms that adjusted rates in response to cost shocks did so quite rapidly; about 98% of a cost shock was passed through within 2 days of the cost shock. Duration analysis reveals that the observed rigidity in rates systematically depends on market structure: Online mortgage rates are 30% to 40% more durable in concentrated markets than in markets where there are many competitors. We also find that rates posted online tend to exhibit downward stickiness; rate adjustments in response to cost increases are about twice the corresponding adjustments for cost decreases.