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Imperfect Competition in Selection Markets

Author

Listed:
  • Neale Mahoney

    (University of Chicago Booth School of Business and NBER)

  • E. Glen Weyl

    (Microsoft Research and Yale University)

Abstract
Policies to correct market power and selection can be misguided when these forces coexist. We build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection. We use graphical price-theoretic reasoning to characterize the interaction between these forces. Using a calibrated model of health insurance, we show that the risk adjustment commonly used to offset adverse selection can reduce coverage and social surplus. Conversely, in a calibrated model of subprime auto lending, realistic levels of competition can generate an oversupply of credit, implying that greater market power is desirable.

Suggested Citation

  • Neale Mahoney & E. Glen Weyl, 2017. "Imperfect Competition in Selection Markets," The Review of Economics and Statistics, MIT Press, vol. 99(4), pages 637-651, July.
    • Handle: RePEc:tpr:restat:v:99:y:2017:i:4:p:637-651
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    References listed on IDEAS

    as
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