By standard indicators of competitiveness, the subprime loan origination market seems quite competitive: no participant has more than 13 percent market share (Bar-Gill 2008). By similar indicators, the credit-card market is even more competitive. For the subprime mortgage market, however, observers have argued that because borrowers find contract terms confusing, they do not do much comparison shopping, so the market is de facto not very competitive. Our analysis will make clear that when ˆ β is known, the features and welfare properties of contracts are the same in a less competitive market. But Section IIIB’s and Section IV’s results on the sorting of consumers according to.
