Posted: 17 Jul 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.
Suggested Citation: Suggested Citation
Brown, Jeffrey R. and Goolsbee, Austan, Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry. Journal of Political Economy, Vol. 110, June 2002. Available at SSRN: https://ssrn.com/abstract=309722