Dynamic Price Competition in Auto-Insurance Brokerage

Bruno Aurichio and Luis Braido ()

No 17, Fucape Working Papers from Fucape Business School

Abstract: 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.

Keywords: Brokerage; fees; price competition; structural estimation; auto-insurance. (search for similar items in EconPapers)
Pages: 34
Date: 2009-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Fucape Working Papers Dezembro 2009

Downloads: (external link)
http://www.fucape.br/_public/workingpapers/17-2009.pdf Primeira Versão, 2009 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.fucape.br/_public/workingpapers/17-2009.pdf [301 Moved Permanently]--> https://www.fucape.br/_public/workingpapers/17-2009.pdf [301 Moved Permanently]--> https://fucape.br/_public/workingpapers/17-2009.pdf)

Related works:
Journal Article: Dynamic price competition in auto insurance brokerage (2018)
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:bbz:fcpwps:17

Access Statistics for this paper

More papers in Fucape Working Papers from Fucape Business School Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES. Contact information at EDIRC.
Bibliographic data for series maintained by Adriana Gasparino ( this e-mail address is bad, please contact ).