Case 2

Finance is profitable in part because competition does not seem to work in driving down price. The article below reports that many mortgage holders (i.e., home loan borrowers) pay higher interest rates than necessary and it results in Australian banks earning an extra $4.5 billion a year

Questions: 6. Why do you think home loan borrowers dont ask their bank to refinance their loan at a lower rate or take their business to a competing bank?

7. Why do you think new lenders are not attracted to the market and get new business by offering lower rates?

8. How would you classify the banks behavior? Is it consistent with being a (a) Pet, (b) Predator, (c) Parasite, (d) Partner?