This paper analyzes a pure price search model of an insurance market in which two different search technologies are simultaneously available: sequential search and nonsequential search. Sequential search characterizes firms that sell directly to consumers and nonsequential search characterizes firms who use independent agents that sell the products of a number of different firms. The separation of firms and consumers into the two market sectors is endogenously determined, and the conditions for equilibrium coexistence are derived. The characteristics of price distributions in the two sectors are then compared in a coexistence equilibrium. Price distributions observed in automobile insurance markets are found to be consistent with the predictions of the theoretical model.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Organizational Behavior and Human Resource Management