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Consumer Search Ability, Price Dispersion and the Digital Divide

Lookup NU author(s): Dr Stephen McDonald, Professor Colin Wren

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Abstract

The paper examines the link between price dispersion and search ability taking the case of the UK Internet motor insurance market. The modelling of an insurance market shows that the standard result of a negative relationship between search and price dispersion holds in the presence of risk, but only at higher levels of search. The paper takes monthly price data from motor insurance websites for five car types and twenty-two individual types over a one-year period. The individual characteristics of age, occupation and sex serve as proxies for search ability. The empirical results suggest that search ability has a negative effect on price dispersion, which is not compatible with alternative explanations such as the propensity to search and Internet access. Overall, online price dispersion is lower for the young and employed, which is consistent with these types having greater search ability.

Publication metadata

Author(s): McDonald S, Wren C

Publication type: Article

Publication status: Published

Journal: Oxford Bulletin of Economics and Statistics

Year: 2017

Volume: 79

Issue: 2

Pages: 234-250

Print publication date: 01/04/2017

Online publication date: 19/10/2016

Acceptance date: 30/06/2016

Date deposited: 04/07/2016

ISSN (print): 0305-9049

ISSN (electronic): 1468-0084

Publisher: Wiley-Blackwell

URL: http://dx.doi.org/10.1111/obes.12151

DOI: 10.1111/obes.12151

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