Previous studies have found a positive association between the costs of switching providers and market power in the banking sector. We believe a similar association exists in the Swedish home insurance industry, given that Finansinspektionen's (2022) previous findings indicate price walking, a premium paid by loyal customers, is prevalent in the market. We therefore investigate whether there exists a positive association between switching costs and market power in the Swedish home insurance market using a panel data approach between the years of 2012-2022. We employ Shy's (2002) measure to estimate switching costs and the Lerner index to estimate market power. The results reveal a statistically significant association between switching costs and market power, indicating that reducing switching costs could help reduce market power, potentially benefiting consumers. These results are robust between model choices, period, and measure of price and costs. The findings also imply that decreases in switching costs could lower consumer prices by increasing competition and reducing profit margins. To reduce switching costs, we propose investigating the effects of standardizing insurance policies for easier comparison and exploring the potential effects of discouraging cumulative discounts that deter customers from changing providers.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:liu-204227 |
| Date | January 2024 |
| Creators | Erkers Lindberg, Filip, Carlsson, Simon |
| Publisher | Linköpings universitet, Nationalekonomi, Linköpings universitet, Filosofiska fakulteten |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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