IDEAS home Printed from https://ideas.repec.org/a/bla/randje/v49y2018i4p914-935.html
   My bibliography  Save this article

Dynamic price competition in auto insurance brokerage

Author

Listed:
  • Luis H.B. Braido
  • Bruno C.A. Ledo

Abstract

We analyze Brazilian data on auto insurance and document that (a) about 20% of policies are sold without brokerage commission; (b) over 40% are sold at the highest fee allowed; and (c) the remaining contracts are associated with a spread‐out distribution of fees. Static models cannot rationalize these findings. We develop a dynamic model of price competition with search and switching costs that reproduces them. We use the equilibrium structure to estimate the model parameters and infer the brokers' expected earnings, the frequency that insurees switch brokers, and the counterfactual effects of a price ceiling policy.

Suggested Citation

  • Luis H.B. Braido & Bruno C.A. Ledo, 2018. "Dynamic price competition in auto insurance brokerage," RAND Journal of Economics, RAND Corporation, vol. 49(4), pages 914-935, December.
    • Handle: RePEc:bla:randje:v:49:y:2018:i:4:p:914-935
    DOI: 10.1111/1756-2171.12256
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1756-2171.12256
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1756-2171.12256?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Baye, Michael R. & Morgan, John, 1999. "A folk theorem for one-shot Bertrand games," Economics Letters, Elsevier, vol. 65(1), pages 59-65, October.
    3. Braido, Luis H.B., 2009. "Multiproduct price competition with heterogeneous consumers and nonconvex costs," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 526-534, September.
    4. Sharkey, William W. & Sibley, David S., 1993. "A Bertrand model of pricing and entry," Economics Letters, Elsevier, vol. 41(2), pages 199-206.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fabra, Natalia & Reguant, Mar, 2020. "A model of search with price discrimination," European Economic Review, Elsevier, vol. 129(C).
    2. Jason Allen & Robert Clark & Jean-François Houde & Shaoteng Li & Anna Trubnikova, 2023. "The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending," Staff Working Papers 23-12, Bank of Canada.
    3. Guillermo Marshall, 2020. "Search and Wholesale Price Discrimination," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 346-374, June.
    4. Bruno Cesar Aurichio Ledo, 2011. "Competição Em Preços Entre Corretores Deseguros De Automóveis," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 045, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Jason Allen & Shaoteng Li, 2020. "Dynamic Competition in Negotiated Price Markets," Staff Working Papers 20-22, Bank of Canada.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marquez, Robert, 1997. "A note on Bertrand competition with asymmetric fixed costs," Economics Letters, Elsevier, vol. 57(1), pages 87-96, November.
    2. Suzanne Bijkerk & Casper de Vries, 2019. "Asset-Based Lending," Tinbergen Institute Discussion Papers 19-032/VII, Tinbergen Institute.
    3. Anderson, Simon & Baik, Alicia & Larson, Nathan, 2015. "Personalized pricing and advertising: An asymmetric equilibrium analysis," Games and Economic Behavior, Elsevier, vol. 92(C), pages 53-73.
    4. Michael Baye & Dan Kovenock & Casper Vries, 2012. "Contests with rank-order spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 315-350, October.
    5. Szech, Nora & Weinschenk, Philipp, 2013. "Rebates in a Bertrand game," Journal of Mathematical Economics, Elsevier, vol. 49(2), pages 124-133.
    6. Saporiti Alejandro & Coloma Germán, 2010. "Bertrand Competition in Markets with Fixed Costs," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-30, June.
    7. Hoernig, Steffen, 2005. "Bertrand Equilibria and Sharing Rules," CEPR Discussion Papers 4972, C.E.P.R. Discussion Papers.
    8. Braido, Luis H.B., 2009. "Multiproduct price competition with heterogeneous consumers and nonconvex costs," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 526-534, September.
    9. Braido, Luis H.B. & Shalders, Felipe L., 2015. "Monopoly rents in contestable markets," Economics Letters, Elsevier, vol. 130(C), pages 89-92.
    10. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
    11. Marceau, Nicolas & Mongrain, Steeve, 2011. "Competition in law enforcement and capital allocation," Journal of Urban Economics, Elsevier, vol. 69(1), pages 136-147, January.
    12. Jianqiang Zhang & Weijun Zhong & Shue Mei, 2012. "Competitive effects of informative advertising in distribution channels," Marketing Letters, Springer, vol. 23(3), pages 561-584, September.
    13. Raymond J. Deneckere & Dan Kovenock, 1988. "Capacity-Constrained Price Competition When Unit Costs Differ," Discussion Papers 861, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Anindya Ghose & Tridas Mukhopadhyay & Uday Rajan, 2007. "The Impact of Internet Referral Services on a Supply Chain," Information Systems Research, INFORMS, vol. 18(3), pages 300-319, September.
    15. Li, Chenguang & Sexton, Richard J., 2009. "Impacts of Retailers’ Pricing Strategies for Produce Commodities on Farmer Welfare," 2009 Conference, August 16-22, 2009, Beijing, China 51720, International Association of Agricultural Economists.
    16. Oliver Hinz & Jochen Eckert, 2010. "The Impact of Search and Recommendation Systems on Sales in Electronic Commerce," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 2(2), pages 67-77, April.
    17. Peyman Khezr & Flavio M. Menezes, 2021. "Entry and social efficiency under Bertrand competition and asymmetric information," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(4), pages 927-944, December.
    18. De los Santos, Babur & Kim, In Kyung & Lubensky, Dmitry, 2018. "Do MSRPs decrease prices?," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 429-457.
      • Babur De los Santos & In Kyung Kim & Dmitry Lubensky, 2013. "Do MSRPs Decrease Prices?," Working Papers 2013-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    19. Edgardo Arturo Ayala Gaytán, 2009. "Social network externalities and price dispersion in online markets," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 1-28, November.
    20. Karle, Heiko & Schumacher, Heiner & Vølund, Rune, 2023. "Consumer loss aversion and scale-dependent psychological switching costs," Games and Economic Behavior, Elsevier, vol. 138(C), pages 214-237.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:49:y:2018:i:4:p:914-935. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/randdus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.