Product Proliferation under Rational Inattention: Application to Health Insurance

Zach Brown and Jihye Jeon

AEA Papers and Proceedings, 2021, vol. 111, 554-59

Abstract: In markets with complicated products such as insurance, why do firms offer many products even when consumers appear to receive little benefit? We show that when consumers face information acquisition costs, firms may have an incentive to introduce many undifferentiated products. This allows firms to gain market share and increase markups. We document initial evidence consistent with the model using data from Medicare prescription drug insurance. Insurers that offer more duplicate or similar plans have higher-cost plans. These results suggest a role for policymakers to restrict product proliferation in markets with complicated products.

JEL-codes: D83 G22 I13 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/pandp.20211082 (application/pdf)
https://doi.org/10.3886/E139265V1 (text/html)
https://www.aeaweb.org/doi/10.1257/pandp.20211082.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/pandp.20211082.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:apandp:v:111:y:2021:p:554-59

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/subscribe.html

DOI: 10.1257/pandp.20211082

Access Statistics for this article

AEA Papers and Proceedings is currently edited by William Johnson and Kelly Markel

More articles in AEA Papers and Proceedings from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert (mpa@aeapubs.org).