Imperfect Competition in Selection Markets

Neale Mahoney; E. Glen Weyl

doi:10.1162/rest_a_00661

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Imperfect Competition in Selection Markets

Neale Mahoney¹; E. Glen Weyl²

¹ University of Chicago Booth School of Business and NBER · ² Microsoft Research and Yale University

The Review of Economics and Statistics 2017

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.

DOI: 10.1162/rest_a_00661
Volume: 99 (4)
Pages: 637-651
Language: en
Export: BibTeX
Sources: openalex crossref