The effect of within‐industry diversification on firm performance: synergy creation, multi‐market contact and market structuration

Stan Xiao Li and Royston Greenwood

Strategic Management Journal, 2004, vol. 25, issue 12, 1131-1153

Abstract: This paper examines the effect of diversification upon intra‐industry performance. We propose that intra‐industry diversification promises three sets of benefits, which, separately and in combination, provide firms with a competitive advantage: synergies arising from economies of scope; premiums from mutual forbearance enabled by multi‐market competition; and efficiencies derived from market structuration. The additive and integrative effects of the first two have not been explored. The benefits of market structuration remain untheorized and thus untested. The test of our theoretical model in the Canadian general insurance industry indicates that mutual forbearance provides advantage under specified conditions, that market structuration also provides advantages, but that diversification per se does not. Copyright © 2004 John Wiley & Sons, Ltd.

Date: 2004
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