(Non-)Insurance Markets, Loss Size Manipulation and Competition: Experimental Evidence(2017)
The common view that buyer power of insurers may effectively counteract provider market power critically rests on the idea that consumers and insurers have a joint interest in extracting price concessions. We develop theory and provide experimental evidence that the interests of insurers and consumers may be importantly misaligned. Insurers with buyer power benefit from increasing small initial loss sizes to create demand for insurance. Insurer competition eliminates profits but markets do not return to the initial non-insurance state. This constitutes a welfare loss. The results suggest that policy makers must take care in granting insurers buyer power.
- insurance markets,
- risk elicitation,
- buyer power
Citation InformationJeroen Hinloopen and Adriaan Soetevent. "(Non-)Insurance Markets, Loss Size Manipulation and Competition: Experimental Evidence" (2017)
Available at: http://works.bepress.com/hinloopen/16/