We study entry in markets which are characterized by adverse selection. The analysis is motivated by the introduction of freedom of services in insurance markets at the European Community (EC) level. We assume that entrants in each domestic market (large multinational firms) are more efficient due to scale/scope economies but suffer an informational disadvantage. Incumbent firms, on the other hand, have perfect information about risks but incur higher production costs. We show there may exist competitive equilibria in which both types of firms coexist. The idea is that each technology trades-off production costs with information costs.
|Number of pages||9|
|Journal||The GENEVA Papers on Risk and Insurance Theory|
|Publication status||Published - Jun 1993|
- Demand Creation
- Demand Diversion
- Freedom of Services