This paper investigates consumer switching costs in the context of health insurance markets, where adverse selection is a potential concern. Switching costs contribute to poor choices when the market environment changes and consumers do not adjust appropriately. Though previous work has studied the problems of adverse selection and consumer choice inadequacy in isolation, these phenomena interact in a way that directly impacts market outcomes. We use a unique proprietary panel data set with the health plan choices and medical utilization of employees at a large firm to show that (i) switching costs are large and (ii) switching costs significantly impact the degree of adverse selection in equilibrium. We estimate a structural choice model to jointly quantify switching costs, risk preferences, and health risk in the population. We use the output of this model to study the welfare impact of an information provision policy that nudges consumers toward better decisions by reducing switching costs. In a partial equilibrium setting where observed plan prices are held fixed, we find that a policy that completely eliminates switching costs improves consumer welfare by 10%. In a general equilibrium setting where insurers change prices to reflect the expenses of their risk pools, the same policy (i) exacerbates

Medicare eligibles have the option of choosing from a menu of privately administered managed care plans, known as Medicare Advantage (MA) plans, in lieu of conventional fee-for-service Medicare coverage ("original Medicare"). These plans often provide extra bene…ts to enrollees, but may impose large switching costs as a result of restrictive provider networks, di¤erences in coverage across plans, and learning and search costs. I propose a structural dynamic discrete choice model of how consumers who are persistently heterogeneous make the choice among MA plans and original Medicare based on the characteristics of the available MA plans. The model explicitly incorporates a switching cost and changes over time in choice sets and plan characteristics. I estimate the parameters of the model, including the switching cost, using the methods developed by Gowrisankaran and Rysman (2011). The estimates indicate that the switching cost is statistically and economically signi…cant. Through a series of counterfactual analyses, I …nd that the share of consumers choosing MA plans in place of original Medicare would more than triple in the absence of switching costs, and nearly double if plan exit and quality changes were eliminated. I also …nd that when switching costs are accounted for the Medicare Advantage program is not very valuable to consumers and even reduces consumer welfare in some years. I am grateful to my main advisor, Gautam Gowrisankaran, who has been an excellent source of ideas, suggestions, and encouragement. The input of Kei Hirano, Mo Xiao, and Keith Joiner has also been invaluable. Paris Cleanthous and other participants at the CEPR IO School made helpful comments, as did participants in the University of Arizona

The article examines incentives for exclusive distribution of premium television programming. Static analysis shows that a vertically integrated operator with premium programming always supplies this content to the rival distributor, using per-subscriber fees to soften competition. In a dynamic setting with switching costs exclusivity confers a market share advantage, benefiting the operator in the future. Under certain conditions this future benefit outweighs the opportunity cost of forgone wholesale fees, making exclusivity the preferred choice. Alternative dynamic mechanisms are explored, identifying essential features. The analysis explains the observed incidence of content exclusivity in pay TV and provides guidance for policy makers. Programme content plays a central role in pay TV competition. In choosing between distributors, consumers base their choice largely on the programming available from each one.1 In particular, highly attractive ‘premium ’ programming, especially live coverage of popular sports events and recent Hollywood movies, drives consumer choice.2 By making such content available exclusively to its own subscribers, a distributor gains market share from its rivals, making exclusivity potentially attractive as a competitive strategy. For this reason, premium content is often described by

Critics of the H-1B program for high-skilled workers argue that the program restricts immigrant job mobility and lacks a vehicle for adjust-ing the number of visas during a recession. We study the job mobility of highly-skilled Indian IT guest workers and provide new evidence on their inter-firm mobility and return migration patterns. We use a unique multi-year firm level dataset to show that, outside of the Great Recession, these workers are mobile and that lower paid guest workers are more likely than higher paid guest workers to separate to another firm in the U.S. We also analyze return migration decisions and find that low wage workers repatriate more than high wage workers, and that this relationship intensified during the Great Recession. This par-tially mitigates concerns that guest worker visa programs do not adjust to fluctuations in the macro economy. Following this finding, we show that the employment to population ratio (EPOP) for highly-skilled male workers has fallen at a much steeper rate since 2008 than is typ-ically recognized, once we account for the phenomenon of discouraged immigrants.

This paper proposes an algorithm to estimate dynamic discrete choice models using aggregate market share data. The algorithm achieves a computational advantage by decomposing the com-plicated mapping between market shares and utility ows into two simpler ones. The …rst maps observed market shares to mean choice speci…c values, and the second then maps to mean utility ows. In the application, we estimate switching costs in the Medicare Part D market. Our results indicate a large switching cost of around $1,700, which implies an average welfare loss of $480 as enrollees choose to remain in sub-optimal plans to avoid switching costs.

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effect of consumer switching costs on market power

This paper develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time. Existing consumers are forward-looking and incur a fixed cost for switching banks, whereas incoming consumers are forward-looking but do not incur any cost for joining a bank. The main finding is that consumers prefer banks with more employees and branches. The switching cost is approximately 0.8 % of the deposit’s value, which leads the static model to bias the demand estimates. The dynamic model shows that the price elasticity over a long time horizon is substantially larger than the same elasticity over a short time horizon. Counterfactual experiments with a dynamic monopoly show that reducing the switching cost has a comparable competitive effect on bank pricing as a result of reducing the dominant position of

We measure the welfare consequences of market power over quality in cable television markets. We extend the analytical approach commonly used in the theoretical screen-ing literature to specify an empirical model that endogenizes the prices and qualities offered by multiproduct monopoly cable television systems. We estimate the model on an unbalanced panel of xxx cable systems between xxx and 2000. Preliminary results using a single cross-section in 1998 and a simplified empirical model show significant degradation in the quality of offered cable service relative to first-best levels, the welfare consequences of which are roughly half that from monopoly pricing. The proposed em-pirical framework readily adapts itself to analyzing competition in prices and qualities. ** * Preliminary. Comments welcome. Please do not cite or quote. *** ∗This draft is preliminary. Please do not cite or quote. Comments welcome. We would like to thank Eugenio Miravete, Gary Biglaiser, and seminar participants at Arizona, UCLA, Northwestern and the CEPR Conference on Competition in the New Economy for helpful comments. Special thanks goes to Chenghuan (Sean) Chu for providing the data used in this analysis and to Ali Yurukoglu, with whom we have had many fruitful discussions about cable television markets. Correspondance may be sent to Gre-

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