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(Non‐)Insurance Markets, Loss Size Manipulation and Competition: Experimental Evidence

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  • Jeroen Hinloopen
  • Adriaan R. Soetevent

Abstract

The common view that insurer buyer power may effectively counteract provider market power critically rests on the idea that consumers and insurers have a joint interest in pushing for price and cost reductions. We develop theory and provide experimental evidence that the interests of insurers and consumers may be misaligned when insurers have the power to influence the service supplier’s cost. Insurers with such buyer power may benefit from increasing initial loss sizes to create demand for insurance. Insurer competition eliminates their profits but markets do not return to the initial non‐insurance state. This constitutes a welfare loss.

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  • Jeroen Hinloopen & Adriaan R. Soetevent, 2020. "(Non‐)Insurance Markets, Loss Size Manipulation and Competition: Experimental Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 68(4), pages 819-856, December.
  • Handle: RePEc:bla:jindec:v:68:y:2020:i:4:p:819-856
    DOI: 10.1111/joie.12246
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    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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