Working Papers

Consumer-to-business payment markets are two-sided: networks charge merchants fees to fund consumers’ rewards. I study how regulation, private entry, and public entry affect prices, distribution, and welfare in equilibrium. I model consumer adoption and merchant acceptance of multiple cards, merchant pricing, and network competition. I estimate the model by matching data on consumers’ card holdings, merchant acceptance, network pricing, and the effects of debit rewards reductions. The estimated model matches external ev- idence on networks’ costs, merchants’ margins, and the effects of AmEx’s 2016–2019 cuts in merchant fees. Using the estimated model, I compare the effects of capping credit card mer- chant fees, increasing entry of private credit card networks, and introducing a low-fee public option like FedNow. Capping credit card merchant fees is progressive and increases annual welfare by $29 billion by reducing rewards, credit card use, and retail prices. In contrast, because I estimate that consumers are reward-sensitive, but merchants are fee-insensitive, entry has the opposite effects. A public option struggles to gain consumer adoption without rewards, limiting welfare gains.

Cornered Borrowers: Lender Segmentation in the Provision of Minority Mortgages (With Gregor Matvos and Amit Seru, Draft Coming Soon!)

We study the equilibrium consequences of differences in mortgage shopping behavior between majority and minority borrowers. We identify minority-specialized lenders, who disproportionately lend to minority borrowers and originate one-fifth of minority mortgages. These smaller lenders charge high mortgage rates and borrowing from them is partially responsible for the minority interest rate gap. Minority-specialized lenders are more likely to employ minority employees and have higher market shares in areas with more non-English speakers.  Borrowers are also less likely to withdraw mortgage applications from these lenders. These facts suggests that minority-specialized lenders provide costly minority-specialized services, rather than discriminate against these borrowers. To quantify the effect of minority-specialized service provision in equilibrium, we estimate a model in which minority specialized lenders compete with mainstream lenders, and majority and minority borrowers differ in loan demand as well as the types of lenders they consider. Our novel identification strategy uses withdrawn mortgage applications to separately identify borrower consideration sets and preferences. The estimated model can rationalize the minority gap in rates as well as consideration set size across groups. Minority-specialized lending attracts minorities by providing services valued by minorities, and by lowering search frictions. Minorities gain from a broader diffusion of minority-specialized lending, and these gains are large relative to potential gains from eliminating residual racial discrimination in interest rates. Our model suggests fair lending laws can disincentivize mainstream lenders' investments in minority-specialization, reducing competition and welfare for minority borrowers.

Financial frictions can overturn conventional antitrust analysis of startup acquisitions. I extend Myers-Majluf to include the option to be acquired. Low types are acquired, medium types issue equity, and high types do not invest. Blocking acquisitions lowers the average type of equity issuers and raises the cost of capital for standalone startups. The welfare loss from lower investment can overwhelm the welfare gains from blocking anticompetitive acquisitions. A case study from the pharmaceutical industry suggests antitrust policy can have a large effect on the valuations of startups who are unlikely to be acquired for anticompetitive reasons.

Work in Progress

Lending to Lemons (with Joseph Hall)

Minority Lenders and Monetary Policy Passthrough (with Gregor Matvos, Amit Seru, and Francesco Spizzuoco)

What Explains Fee Dispersion in Private Equity? (with Juliane Begenau, Claudia Robles-Garcia, and Emil Siriwardane)