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Proprietary Data, Competition, and Consumer Effort: An Application to Telematics in Auto Insurance

Imke Reimers and Benjamin Shiller

No 119, Working Papers from Brandeis University, Department of Economics and International Businesss School

Abstract: Firms are increasingly able to monitor and collect proprietary data on their customers' behaviors, raising concerns among antitrust autorities that incumbents may use such data to soften competition. Focusing on auto insurance monitoring programs which offer tailored discounts to consumers driving safely, we examine the impact of proprietary data collection on incumbent profits. We find that incumbents' profits initially increase but are eroded by competition from other firms offering similar programs. We further find that these monitoring programs reduce fatal accidents. Yet the benefits are short lived. Incumbents, who do not necessarily internalize the full costs of accidents, typically monitor their customers only temporarily. Thus, regulation incentivizing permanent monitoring may improve welfare by reducing moral hazard.

Keywords: Proprietary data; competition; asymmetric information; switching costs; car insurance; privacy (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 L40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ias and nep-tre
Date: 2018-01
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