Conglomeration Versus Strategic Focus: Evidence from the Insurance Industry
48 Pages Posted: 13 Mar 2000
Date Written: Working Paper No. 99-29
We provide evidence on the validity of the conglomeration hypothesis versus the strategic focus hypothesis for financial institutions using data on U.S. insurance companies. 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.
JEL Classification: G22, G28, G34, L23, L89
Suggested Citation: Suggested Citation