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An Equilibrium Analysis of the Insurance Market with Horizontal Differentiation

Author

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  • Okura Mahito

    (Nagasaki University)

Abstract

This article analyzes the life and nonlife insurance markets with horizontal differentiation and brand loyalties using a spatial competition model. We construct a three-stage game that includes sales promotion in the first stage, insurance product characteristics in the second stage, and premiums in the third stage. The analysis derives the following results. First, an insurance firm with greater brand loyalty realizes a higher degree of differentiation and sets a relatively higher premium. Second, introducing regulation in insurance product characteristics leads to a lower degree of differentiation and a lower level of sales promotion. Such regulation may then be desirable in terms of social surplus.

Suggested Citation

  • Okura Mahito, 2010. "An Equilibrium Analysis of the Insurance Market with Horizontal Differentiation," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 4(2), pages 1-24, July.
  • Handle: RePEc:bpj:apjrin:v:4:y:2010:i:2:n:2
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    References listed on IDEAS

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    12. Polo, Michele, 1991. "Hotelling Duopoly with Uninformed Consumers," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 701-715, December.
    13. Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, pages 67-71.
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    Cited by:

    1. Banyár, József & Regős, Gábor, 2012. "Paradoxical price effects on insurance markets," Economic Modelling, Elsevier, pages 1399-1407.

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