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Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry

  • Jeffrey R. Brown
  • Austan Goolsbee

The Internet may significantly reduce search costs by enabling price comparisons on-line. This paper provides empirical evidence on how Internet comparison shopping sites affected the prices of life insurance in the 1990s. With micro data on individual insurance policies and with individual and policy characteristics controlled for, hedonic-type regressions show that increases in Internet use significantly reduced the price of term life insurance. Further evidence shows that prices did not fall with rising Internet usage in the period before the sites began, nor for insurance types that were not covered on the sites. The results suggest that the growth of the Internet has reduced term life prices by 815 percent. 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 use spreads, the dispersion falls.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 110 (2002)
Issue (Month): 3 (June)
Pages: 481-507

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Handle: RePEc:ucp:jpolec:v:110:y:2002:i:3:p:481-507
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