Switching Costs in Competitive Health Insurance Markets

Switching Costs in Competitive Health Insurance Markets

In this paper we investigate the possible presence of switching costs when consumers are offered the opportunity to change their basic health insurance provider. We focus on the specific case of Switzerland which implemented a pure form of competition in basic health insurance markets. We identify several barriers to switching, namely choice overload, status quo bias, the possession of suppleme...

Are Health Insurance Markets Competitive?

The United States stands virtually alone among leading industrialized nations in its heavy and increasing reliance on the private insurance sector to intermediate health care for its residents. The assumption underlying this system is that fierce competition among private insurers yields more efficient outcomes, broadly writ (Alain C. Enthoven 1978). However, a comprehensive survey on the state...

Do Switching Costs Make Markets Less Competitive ?

The conventional wisdom in economic theory holds that switching costs make markets less competitive. This paper challenges this claim. We formulate an empirically realistic model of dynamic price competition that allows for differentiated products and imperfect lock-in. We calibrate this model with data from frequently purchased packaged goods markets. These data are ideal in the sense that the...

Contending with Risk Selection in Competitive Health Insurance Markets

Switching Costs in Two-sided Markets∗

In many markets, there are switching costs and network effects. Yet the literature generally deals with them separately. This paper bridges the gap by analyzing their interaction (or “indirect bargain”) in a dynamic two-sided market. It shows that in the symmetric equilibrium, the classic result that the first-period price is U-shaped in switching costs does not emerge, but instead switching co...