Quantifying Search and Switching Costs in the U.S. Auto Insurance Industry
University of Texas at Dallas - Naveen Jindal School of Management
In this article, we estimate demand for auto insurance while incorporating two types of market frictions, namely, search and switching costs. We develop an integrated utility-maximizing model of consumers' decisions of which and how many companies to search and from which company to purchase. Our modeling approach rationalizes the observed consideration set as being the outcome of a search process by a consumer. We find that the cost of collecting a price quote through an online channel is about $30, the cost of collecting a price quote offline varies from $85 to $135 and average switching costs are $115.
Number of Pages in PDF File: 63
Keywords: Search, Consideration Sets, Auto Insurance
JEL Classification: D83, G22, L89, M31, D12, C15working papers series
Date posted: March 15, 2012 ; Last revised: February 5, 2013
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