IDEAS home Printed from https://ideas.repec.org/a/bpj/apjrin/v1y2005i1n4.html
   My bibliography  Save this article

Distribution Systems and Operating Leverage

Author

Listed:
  • Seog S. Hun

    (Graduate School of Management, KAIST, Korea)

Abstract

This paper presents a model in which firms compete in a Cournot-Nash game. Firms can choose an exclusive agency (EA) or an independent agency (IA) distribution system. Firms can enter and exit the market and switch distribution systems with no cost. The only difference between an EA system and an IA system is the operating leverage or cost structure. An EA firm incurs low (per unit) variable cost but high fixed cost. An IA firm incurs high variable cost but low fixed cost. Under the different operating leverages, we investigate the equilibrium outcome in which no entry, no exit, and no switching occur. We find that coexistence is possible when IA firms are less efficient than EA firms. IA firms can dominate in the market even if IA firms are inefficient. An EA firm produces more than an IA firm. IA firms tend to dominate more in high risk lines than in low risk lines. We provide numerical examples showing how an inefficient system can survive and even dominate in the market.

Suggested Citation

  • Seog S. Hun, 2005. "Distribution Systems and Operating Leverage," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 1(1), pages 1-18, June.
    • Handle: RePEc:bpj:apjrin:v:1:y:2005:i:1:n:4
    DOI: 10.2202/2153-3792.1003
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/2153-3792.1003
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/2153-3792.1003?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Martina Eckardt & Solvig Räthke‐Döppner, 2010. "The Quality of Insurance Intermediary Services—Empirical Evidence for Germany," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(3), pages 667-701, September.
    2. Chang Vincent Y. & Wang Jennifer L. & Tzeng Larry Y., 2010. "A Reexamination of the Relationship between Organizational Forms and Distribution Channels in the U.S. Property Liability Insurance Industry," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 4(2), pages 1-26, July.
    3. Tsai-Jyh Chen, 0. "The role of distribution channels in market discipline for the life insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 0, pages 1-23.
    4. Tsai-Jyh Chen, 2021. "The role of distribution channels in market discipline for the life insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(1), pages 107-129, January.

    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:bpj:apjrin:v:1:y:2005:i:1:n:4. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    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.