Quantifying Search and Switching Costs in the U.S. Auto Insurance Industry

55 Pages Posted: 15 Mar 2012 Last revised: 5 Apr 2014

See all articles by Elisabeth Honka

Elisabeth Honka

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: April 3, 2014

Abstract

I estimate demand for auto insurance in the presence of two types of market frictions: search and switching costs. I develop an integrated utility-maximizing model in which consumers decide over which and how many companies to search and from which company to purchase. My modeling approach rationalizes observed consideration sets as being the outcomes of consumers’ search processes. I find search costs to range from $35 to $170 and average switching costs of $40. Search costs are the most important driver of customer retention and their elimination is the main lever to increase consumer welfare in the auto insurance industry.

Keywords: consumer search, simultaneous search, switching costs, auto insurance industry

JEL Classification: D43, D83, G22, L13, L89

Suggested Citation

Honka, Elisabeth, Quantifying Search and Switching Costs in the U.S. Auto Insurance Industry (April 3, 2014). Available at SSRN: https://ssrn.com/abstract=2023446 or http://dx.doi.org/10.2139/ssrn.2023446

Elisabeth Honka (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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