Advanced Search
MyIDEAS: Login to save this paper or follow this series

Does the Internet Make Markets More Competitive?

Contents:

Author Info

  • Jeffrey R. Brown
  • Austan Goolsbee

Abstract

The Internet has the potential to significantly reduce search costs by allowing consumers to engage in low-cost price comparisons online. This paper provides empirical evidence on the impact that the rise of Internet comparison shopping sites has had for the prices of life insurance in the 1990s. Using micro data on individual life insurance policies, the results indicate that, controlling for individual and policy characteristics, a 10 percent increase in the share of individuals in a group using the Internet reduces average insurance prices for the group by as much as 5 percent. Further evidence indicates that prices did not fall with rising Internet usage for insurance types that were not covered by the comparison websites, nor did they in the period before the insurance sites came online. The results suggest that growth of the Internet has reduced term life prices by 8 to 15 percent and increased consumer surplus by $115-215 million per year and perhaps more. The results also show that the initial introduction of the Internet search sites is initially associated with an increase in price dispersion within demographic groups, but as the share of people using the technology rises further, dispersion falls.

Download Info

If 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.
File URL: http://www.nber.org/papers/w7996.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7996.

as in new window
Length:
Date of creation: Nov 2000
Date of revision:
Publication status: published as Brown, Jeffrey R. and Austan Goolsbee. "Does The Internet Make Markets More Competitive? Evidence From The Life Insurance Industry," Journal of Political Economy, 2002, v110(3,Jun), 481-507.
Handle: RePEc:nbr:nberwo:7996

Note: AG IO PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Dahlby, Bev & West, Douglas S, 1986. "Price Dispersion in an Automobile Insurance Market," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(2), pages 418-38, April.
  2. John Cawley & Tomas Philipson, 1996. "An Empirical Examination of Information Barriers to Trade in Insurance," NBER Working Papers, National Bureau of Economic Research, Inc 5669, National Bureau of Economic Research, Inc.
  3. Jeffrey Milyo & Joel Waldfogel, 1998. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 9807, Department of Economics, Tufts University.
  4. Jeffrey R. Brown, 1999. "Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests," NBER Working Papers, National Bureau of Economic Research, Inc 7193, National Bureau of Economic Research, Inc.
  5. Kwoka, John E, Jr, 1984. "Advertising and the Price and Quality of Optometric Services," American Economic Review, American Economic Association, American Economic Association, vol. 74(1), pages 211-16, March.
  6. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, American Economic Association, vol. 70(4), pages 651-59, September.
  7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(2), pages 156-168, June.
  8. Adam Klauber, 2000. "Insurance on the Internet," Risk Management and Insurance Review, American Risk and Insurance Association, American Risk and Insurance Association, vol. 3(1), pages 45-62, 03.
  9. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 45(2), pages 317-43, October.
  10. Austan Goolsbee, 2000. "In A World Without Borders: The Impact Of Taxes On Internet Commerce," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(2), pages 561-576, May.
  11. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, INFORMS, vol. 43(12), pages 1676-1692, December.
  12. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 480-93, June.
  13. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 69, pages 213.
  14. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(4), pages 833-862, August.
  15. Clay, Karen, et al, 2002. "Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 50(3), pages 351-67, September.
  16. Benham, Lee, 1972. "The Effect of Advertising on the Price of Eyeglasses," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 15(2), pages 337-52, October.
  17. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 700-712, September.
  18. Van Hoomissen, Theresa, 1988. "Price Dispersion and Inflation: Evidence from Israel," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(6), pages 1303-14, December.
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 in new window

Cited by:
  1. Florian Zettelmeyer & Fiona Scott Morton & Jorge Silva-Risso, 2005. "How the Internet Lowers Prices: Evidence from Matched Survey and Auto Transaction Data," NBER Working Papers, National Bureau of Economic Research, Inc 11515, National Bureau of Economic Research, Inc.
  2. Cigan, Heidi, 2002. "The internet's contribution to progress and growth in Germany: The economic impact of the internet and the price structure of access," HWWA Reports, Hamburg Institute of International Economics (HWWA) 216, Hamburg Institute of International Economics (HWWA).
  3. Makoto Watanabe, 2006. "Inflation, Price Competition and Consumer Search Technology," Economics Working Papers, Universidad Carlos III, Departamento de Economía we065623, Universidad Carlos III, Departamento de Economía.
  4. Erik Brynjolfsson & Astrid Dick & Michael Smith, 2010. "A nearly perfect market?," Quantitative Marketing and Economics, Springer, Springer, vol. 8(1), pages 1-33, March.
  5. Emin M. Dinlersoz & Han Li & Roger Sherman & Rubén Hernández-Murillo, 2006. "Information and drug prices: evidence from the Medicare discount drug card program," Working Papers, Federal Reserve Bank of St. Louis 2005-072, Federal Reserve Bank of St. Louis.
  6. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva Risso, 2000. "Internet Car Retailing," NBER Working Papers, National Bureau of Economic Research, Inc 7961, National Bureau of Economic Research, Inc.
  7. Mark V. Pauly & Kate H. Withers & Krupa Subramanian-Viswana & Jean Lemaire & John C. Hershey, 2003. "Price Elasticity of Demand for Term Life Insurance and Adverse Selection," NBER Working Papers, National Bureau of Economic Research, Inc 9925, National Bureau of Economic Research, Inc.
  8. Scott Schuh & Oz Shy & Joanna Stavins & Robert Triest, 2011. "An economic analysis of the 2010 proposed settlement between the Department of Justice and credit card networks," Public Policy Discussion Paper, Federal Reserve Bank of Boston 11-4, Federal Reserve Bank of Boston.
  9. Stefan W. Schmitz & Michael Latzer, 2002. "Competition in B2C eCommerce: Analytical Issues and Empirical Evidence," Industrial Organization, EconWPA 0211001, EconWPA.
  10. Brynjolfsson, Erik & Dick, Astrid Andrea & Smith, Michael D., 2004. "Search and Product Differentiation at an Internet Shopbot," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 4441-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  11. Thierry Pénard & Sophie Larribeau, 2002. "Le commerce électronique en France : un essai de mesure sur le marché des CD," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 355(1), pages 27-46.
  12. D'Urso, Victoria T., 2003. "Home Buyer Search Duration and the Internet," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 4271-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  13. Alan T. Sorensen, 2001. "An Empirical Model of Heterogeneous Consumer Search for Retail Prescription Drugs," NBER Working Papers, National Bureau of Economic Research, Inc 8548, National Bureau of Economic Research, Inc.
  14. M. Kate Bundorf & Laurence Baker & Sara Singer & Todd Wagner, 2004. "Consumer Demand for Health Information on the Internet," NBER Working Papers, National Bureau of Economic Research, Inc 10386, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7996. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

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.