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

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  • Stan Xiao Li
  • Royston Greenwood

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.

Suggested Citation

  • Stan Xiao Li & Royston Greenwood, 2004. "The effect of within‐industry diversification on firm performance: synergy creation, multi‐market contact and market structuration," Strategic Management Journal, Wiley Blackwell, vol. 25(12), pages 1131-1153, December.
  • Handle: RePEc:bla:stratm:v:25:y:2004:i:12:p:1131-1153
    DOI: 10.1002/smj.418
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