Dynamic Price Competition in Auto-Insurance Brokerage
| Autor: | Bruno Cesar Aurichio Ledo, Luis H.B. Braido |
|---|---|
| Rok vydání: | 2009 |
| Předmět: |
Counterfactual thinking
Economics and Econometrics Earnings business.industry 05 social sciences Distribution (economics) Model parameters Commission SEGUROS Price ceiling Microeconomics Competition (economics) Brokerage fees price competition structural estimation auto-insurance 0502 economics and business Economics 050207 economics business 050205 econometrics |
| Zdroj: | Repositório Institucional da USP (Biblioteca Digital da Produção Intelectual) Universidade de São Paulo (USP) instacron:USP |
| Popis: | Brazilian data on auto-insurance present an intriguing fact: the coexistence of policies being sold with zero and positive brokerage fees. We extend the Bertrand model of price competition to a dynamic environment in which agents face a .xed cost to switch to a new (unmatched) broker. This incumbent?s advantage drives unmatched brokers to set fees aggressively. We explicitly derive symmetric re-cursive Nash equilibrium in which zero and positive brokerage fees are played with positive probability. We then use the mixed-strategy equilibrium distribution to perform a maximum likelihood estimation of the model parameters. Using data on brokerage fees alone, this structural econometric procedure allows us to identify: (i) the number of brokers effectively bidding to a given consumer; (ii) the insuree?s cost of switching brokers; and (iii) the expected life-time discounted profits of matched and unmatched brokers. |
| Databáze: | OpenAIRE |
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