Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry
Jeffrey R. Brown
University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); University of Illinois College of Law; University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA); University of Illinois at Urbana-Champaign - Department of Economics
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Journal of Political Economy, Vol. 110, June 2002
The Internet may significantly reduce search costs by enabling price comparisons on-line. This paper provides empirical evidence on how Internet comparison shopping sites affected the prices of life insurance in the 1990s. Using micro data on individual insurance policies and controlling for individual and policy characteristics, it shows that increases in Internet use significantly reduced the price of term life insurance. Further evidence shows that prices did not fall with rising Internet usage in the period before the sites began, nor for insurance types that were not covered on the sites. The results suggest that growth of the Internet has reduced term life prices by 8-15 percent. The results also show that the initial introduction of the Internet search sites is initially associated with an increase in price dispersion within demographic groups, but as use spreads, the dispersion falls.
Accepted Paper Series
Date posted: July 17, 2002
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.328 seconds