TY  - JOUR
AU  - Maestas,Nicole
AU  - Schroeder,Mathis
AU  - Goldman,Dana
TI  - Price Variation in Markets with Homogeneous Goods:  The Case of Medigap
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14679
PY  - 2009
Y2  - January 2009
UR  - http://www.nber.org/papers/w14679
L1  - http://www.nber.org/papers/w14679.pdf
N1  - Author contact info:
Nicole Maestas
RAND Corporation
1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
E-Mail: Nicole_Maestas@rand.org

Mathis Schroeder
Universitat Mannheim
Mannheim Research Institute for
  the Economics of Aging
68131 Mannheim
GERMANY
E-Mail: schroeder@mea.uni-mannheim.de

Dana Goldman
Schaeffer Center for Health Policy and Economics
University of Southern California
 3335 S. Figueroa St, Unit A
 Los Angeles, CA 90089-7273
Tel: (213) 821-7948
Fax: (213) 740-3460
E-Mail: dana.goldman@usc.edu
AB  - Nearly 30 percent of Americans age 65 and older supplement their Medicare health insurance through the Medigap private insurance market.  We show that prices for Medigap policies vary widely, despite the fact that all plans are standardized, and even after controlling for firm heterogeneity.  Economic theory suggests that heterogeneous consumer search costs can lead to a non-degenerate price distribution within a market for otherwise homogenous goods. Using a structural model of equilibrium search costs first posed by Carlson and McAfee (1983), we estimate average search costs to be $72.  We argue that information problems arise from the complexity of the insurance product and lead individuals to rely on insurance agents who do not necessarily guide them to the lowest prices.
ER  -