THE VERTICAL DIFFERENTIATION MODEL IN THE INSURANCE MARKET

Mahito Okura¹*
¹Faculty of Economics, Nagasaki University, Japan
* Corresponding Author : okura@nagasaki-u.ac.jp

Received : -     Accepted : -     Published : 21-12-2010
Volume : 1     Issue : 2       Pages : 12 - 14
Int J Econ Bus Model 1.2 (2010):12-14
DOI : http://dx.doi.org/10.9735/0976-531X.1.2.12-14

Keywords : Vertical differentiation model, Quality, Insurance, Equilibrium, Duopoly
Conflict of Interest : None declared

This article explores the vertical differentiation model in the insurance market. The main results are as follows. First, the equilibrium price differential is not a linear function of the highest quality valuation (accident probability) and the maximum and minimum quality differentials. Second, a high quality insurance firm does not always receive greater equilibrium expected profit, even if its average cost is the same as that of a low-quality insurance firm. Finally, a change in the highest quality valuation has an ambiguous effect on the equilibrium expected profit differential.

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