EconPapers    
Economics at your fingertips  
 

Estimating switching costs with market share data: an application to Medicare Part D

Jungwon Yeo and Daniel P. Miller

International Journal of Industrial Organization, 2018, vol. 61, issue C, 459-501

Abstract: Choice inertia and switching frictions are well-documented features of the demand for health insurance. In this paper, we estimate switching costs in the Medicare Part D market with aggregate market share data using standard discrete choice models for differentiated products. We consider various modelling assumptions: myopic and forward-looking consumers, and with and without random coefficients. Both myopic and forward-looking consumer models with no random coefficients yield switching cost estimates that closely match the actual average switching frequency, with implied dollar-valued switching costs of $1600 to $2000. We find the inclusion of random coefficients to the myopic consumer model results in smaller estimates of switching costs, but only at the expense of the model’s fit to the switching frequency. The estimated welfare losses from switching frictions are large, but they are smaller under the forward-looking consumer model, amounting to around $500 per enrollee annually, compared to over $1000 under the myopic model.

Keywords: Switching costs; Discrete choice model; Medicare part D (search for similar items in EconPapers)
JEL-codes: I13 L88 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167718717303053
Full text for ScienceDirect subscribers only

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:eee:indorg:v:61:y:2018:i:c:p:459-501

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-04-06
Handle: RePEc:eee:indorg:v:61:y:2018:i:c:p:459-501