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Imperfect Competition in Selection Markets

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

E. Glen Weyl

Microsoft Research New York City; Yale University

June 8, 2016

Review of Economics and Statistics, Forthcoming

Policies to correct market power and selection can be misguided when these forces co-exist. We build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection. We use graphical price-theoretic reasoning to characterize the interaction between these forces. Using a calibrated model of health insurance, we show that the risk adjustment commonly used to offset adverse selection can reduce the amount of coverage and social surplus. Conversely, in a calibrated model of subprime auto lending, realistic levels of competition can generate an oversupply of credit, implying greater market power is desirable.

Number of Pages in PDF File: 54

Keywords: selection market, imperfect competition, mergers, risk adjustment, risk-based pricing

JEL Classification: D42, D43, D82, I13, L10, L41

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Date posted: December 30, 2013 ; Last revised: July 12, 2016

Suggested Citation

Mahoney, Neale and Weyl, E. Glen, Imperfect Competition in Selection Markets (June 8, 2016). Review of Economics and Statistics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2372661 or http://dx.doi.org/10.2139/ssrn.2372661

Contact Information

Neale Mahoney
University of Chicago Booth School of Business ( email )
5807 South Woodlawn Ave
Chicago, IL 60637
United States
773.702.9278 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Eric Glen Weyl (Contact Author)
Microsoft Research New York City ( email )
641 Avenue of the Americas, 7th Floor
New York, NY 10011
United States
(857) 998-4513 (Phone)
HOME PAGE: http://www.glenweyl.com
Yale University ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
Feedback to SSRN

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