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Proprietary Data, Competition, and Consumer Effort: An Application to Telematics in Auto Insurance

Author

Listed:
  • Imke Reimers

    () (Northeastern University)

  • Benjamin R. Shiller

    () (Brandeis University)

Abstract

Firms are increasingly able to monitor and collect proprietary data on their customers' behaviors, raising concerns among antitrust autorities that incumbents may use such data to soften competition. Focusing on auto insurance monitoring programs which offer tailored discounts to consumers driving safely, we examine the impact of proprietary data collection on incumbent profits. We find that incumbents' profits initially increase but are eroded by competition from other firms offering similar programs. We further find that these monitoring programs reduce fatal accidents. Yet the benefits are short lived. Incumbents, who do not necessarily internalize the full costs of accidents, typically monitor their customers only temporarily. Thus, regulation incentivizing permanent monitoring may improve welfare by reducing moral hazard.

Suggested Citation

  • Imke Reimers & Benjamin R. Shiller, 2018. "Proprietary Data, Competition, and Consumer Effort: An Application to Telematics in Auto Insurance," Working Papers 119, Brandeis University, Department of Economics and International Businesss School.
  • Handle: RePEc:brd:wpaper:119
    as

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    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP119.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Proprietary data; competition; asymmetric information; switching costs; car insurance; privacy;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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