Strategic Price Discrimination in Compulsory Insurance Markets
AbstractThis paper considers price discrimination when competing firms do not observe a customer's type but only some other variable correlated to it. This is a typical situation in many insurance markets—such as motor insurance—where it is also often the case that insurance is compulsory. We characterise the equilibria and their welfare properties under various price regimes. We show that discrimination based on immutable characteristics such as gender is a dominant strategy, either when firms offer policies at a fixed price or when they charge according to some consumption variable that is correlated to costs. In the latter case, gender discrimination can be an outcome of strategic interaction alone in situations where it would not be adopted by a monopolist. Strategic price discrimination may also increase cross subsidies between types, contrary to expectations. The Geneva Risk and Insurance Review (2005) 30, 71–97. doi:10.1007/s10836-005-1110-7
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Risk and Insurance Review.
Volume (Year): 30 (2005)
Issue (Month): 1 (June)
Contact details of provider:
Web page: http://www.palgrave-journals.com/
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Other versions of this item:
- Luigi Buzzacchi & Tommaso Valletti, 2005. "Strategic Price Discrimination in Compulsory Insurance Markets," The Geneva Papers on Risk and Insurance Theory, Springer, vol. 30(1), pages 71-97, June.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-44, April.
- Hoy, Michael, 1989. "The value of screening mechanisms under alternative insurance possibilities," Journal of Public Economics, Elsevier, vol. 39(2), pages 177-206, July.
- Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
- Schmalensee, Richard, 1984. "Imperfect Information and the Equitability of Competitive Prices," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 441-60, August.
- Kavalec, Chris & Woods, James, 1999. "Toward marginal cost pricing of accident risk: the energy, travel, and welfare impacts of pay-at-the-pump auto insurance," Energy Policy, Elsevier, vol. 27(6), pages 331-342, June.
- Bond, Eric W & Crocker, Keith J, 1991. "Smoking, Skydiving, and Knitting: The Endogenous Categorization of Risks in Insurance Markets with Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 177-200, February.
- Cannon, Edmund & Cipriani, Giam Pietro & Bazar-Rosen, Katia, 2014. "Surprising Selection Effects in the UK Car Insurance Market," IZA Discussion Papers 8172, Institute for the Study of Labor (IZA).
- Kesternich, Iris & Schumacher, Heiner, 2009. "On the Use of Information in Repeated Insurance Markets," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 280, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Reimund Schwarze & Thomas Wein, 2005. "Is the market classification of risk always efficient? evidence from german third party motor insurance," LSE Research Online Documents on Economics 36104, London School of Economics and Political Science, LSE Library.
- Georges Dionne & Casey G. Rothschild, 2014. "Economic Effects of Risk Classification Bans," Cahiers de recherche 1420, CIRPEE.
- Reimund Schwarze & Thomas Wein, 2005.
"Is the Market Classification of Risk Always Efficient? - Evidence from German Third Party Motor Insurance,"
Working Paper Series in Economics
3, University of Lüneburg, Institute of Economics.
- Schwarze, Reimund & Wein, Thomas, 2005. "Is the market classification of risk always efficient? Evidence from German third party motor insurance," German Risk and Insurance Review (GRIR), University of Cologne, Department of Risk Management and Insurance, vol. 1(4), pages 173-202.
- Block, Walter & Snow, Nicholas & Stringham, Edward, 2008. "Banks, insurance companies, and discrimination," MPRA Paper 26035, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.