Keywords: Insurance, conglomeration, focus, mergers, scope economies
Abstract: We use data on U.S. insurance companies to examine the validity of the
conglomeration hypothesis versus the strategic focus hypothesis for
finanical institutions. We distinguish between the hypotheses using profit scope economies, which measures the relative efficiency of joint versus
specialized production, taking both costs and revenues into account. The results suggest that the
conglomeration hypothesis dominates for some types of financial service providers and the strategic
focus hypothesis dominates for other types. This may explain the empirical puzzle of why joint
producers and specialists both appear to be competitively viable in the long run.
Full paper (4563 KB PDF)
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Last update: September 29, 1999