Benefits of Independent Agents' Entrepreneurship: Evidence From the Loan Market

We examine whether different organizational forms influence agents' pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We consider independent agents to be more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as these loans are less subject to competition than transparent loans. We find that opaque loans have higher prices than transparent loans for both types of agents, and the price difference is more pronounced for independent agents. Our evidence suggests that entrepreneurship enables agents to perform better in an environment where agents can profit from exploring opportunities, i.e., a less competitive environment.