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Conglomeration Versus Strategic Focus: Evidence from the Insurance Industry

Allen Berger (), John Cummins (), Mary Weiss and Hongmin Zi

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: 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-codes: G22 G28 G34 L23 L89 (search for similar items in EconPapers)
Date: 2000-03
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Journal Article: Conglomeration versus Strategic Focus: Evidence from the Insurance Industry (2000) Downloads
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