Tenure dependence in consumer-firm relationships: An empirical analysis of consumer departures from automobile insurance firms
Year: 2003
Type: report
Abstract: Long term consumer-firm relationships are an important feature of a large and growing number of industries.Consumer demand in many of these markets exhibits tenure dependence.A crucial question for firm strategy in such markets, then, is whether this tenure dependence reflects true relationship effects -so that a particular consumer's preference for a firm actually increases with tenure.If so, firms face incentives to encourage consumers to remain through the early periods of the relationship, to enter new markets first in order to establish relationships, etc.However, this empirical regularity can also be explained by selection on unobserved heterogeneity.Empirically, the challenge is to use the data generally available in these markets -detailed records of the experiences of the consumers of one firm, with limited information about the broader market -to inform the distinction between these two explanations.This paper relies on individual specific price histories in auto insurance to this end.The principle findings are an economically relevant level of both relationship effects and heterogeneity, but a far more important role for heterogeneity in explaining the observed decline in departure rates.
Source: Econstor (Econstor)
Author: Mark A. Israel
Institution: Northwestern University
Language: English
Subfield: Marketing
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1583459091