Raising capital in an insurance oligopoly market

Julien Hardelin (1, 2) , Sabine Lemoyne de Forges (1, 2)

1 X-DEP-ECO - Département d'Économie de l'École Polytechnique
2 AgroParisTech

We consider an oligopoly of firms that compete on price. Firms produce a non-stochastic output, insurance coverage, which is sold before the true cost is known. They behave as if they were risk-averse for a standard reason of costly external finance. The model consists in a two-stage game. At stage 1, each firm chooses its internal capital level. At stage 2, firms compete on price. We characterize the conditions for Nash equilibria and analyze the strategic impact of capital choice on the market. We discuss the model with regard to insurance industry specificity and regulation.

Mots clés: Capital Choice; Price Competition; Risk-averse Firms; Insurance Market; Capital Choice.

Domaines: Gestion et management; Economies et finances

Julien Hardelin, Sabine Lemoyne de Forges. Raising capital in an insurance oligopoly market. 2009. ⟨hal-00417573⟩