Price Discrimination in Selection Markets

66 Pages Posted: 24 Mar 2020 Last revised: 9 Mar 2023

Date Written: March 1, 2022

Abstract

Should insurance prices vary with age? I consider competitive markets for lemons where a signal (e.g., age) partitions consumers (e.g., young and old). I study the continuum of policies from zero price-discrimination (zero-PD, equal prices) to full-PD (no restrictions). Restricting PD can increases welfare if high-cost markets exhibit greater adverse selection, or when the high-cost market “unravels.” I characterize optimal PD, and show how it is affected by changes in cost. In a calibration, optimal PD increases welfare by about $30/person-year. I extend the model to arbitrary signal structures, behavioral consumers, a monopolized industry, and multi-product firms.

Keywords: Adverse Selection, Price Discrimination

JEL Classification: D82, L52,D41

Suggested Citation

Veiga, Andre, Price Discrimination in Selection Markets (March 1, 2022). Available at SSRN: https://ssrn.com/abstract=3545479 or http://dx.doi.org/10.2139/ssrn.3545479

Andre Veiga (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
241
Abstract Views
1,280
Rank
232,573
PlumX Metrics