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Dynamic price competition in auto insurance brokerage

Author

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  • 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
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    Cited by:

    1. Guillermo Marshall, 2020. "Search and Wholesale Price Discrimination," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 346-374, June.
    2. Jason Allen & Robert Clark & Jean-François Houde & Shaoteng Li & Anna Trubnikova, 2025. "The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending," The Review of Financial Studies, Society for Financial Studies, vol. 38(11), pages 3284-3328.
    3. 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].
    4. Fabra, Natalia & Reguant, Mar, 2020. "A model of search with price discrimination," European Economic Review, Elsevier, vol. 129(C).
    5. Jason Allen & Shaoteng Li, 2025. "Dynamic Competition in Negotiated Price Markets," Journal of Finance, American Finance Association, vol. 80(1), pages 561-614, February.

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