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Firm size distribution: Testing the "independent submarkets model" in the Italian motor insurance industry

  • Buzzacchi, Luigi
  • Valletti, Tommaso M.

This Paper tests the presence of multiple independent submarkets in the Italian motor insurance industry. Independence is motivated by administrative boundaries among provinces and by further locational reasons. We find that the independence effects are sufficient to induce a minimum degree of inequality in the size distribution of firms once submarkets are aggregated. These results are consistent with the predictions of Sutton (1998). At the submarket level, some degree of inequality can be explained by a model of equilibrium price dispersion based on costly consumer search. Our findings show that Sutton’s limiting approach and one based on a game theoretical analysis of an industry are good complements when the industry is made of several independent submarkets.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 24 (2006)
Issue (Month): 4 (July)
Pages: 809-834

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Handle: RePEc:eee:indorg:v:24:y:2006:i:4:p:809-834
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Luigi Buzzacchi & Tommaso M. Valletti, 2004. "Firm Size Distribution in Small Samples," Bulletin of Economic Research, Wiley Blackwell, vol. 56(4), pages 301-309, October.
  2. Franco Mariuzzo & Patrick Walsh & Ciara Whelan, 2003. "Firm Size and Market Power in Carbonated Soft Drinks," Review of Industrial Organization, Springer, vol. 23(3), pages 283-299, December.
  3. Asplund, Marcus, 1998. "On the size distributions of firms and markets," SSE/EFI Working Paper Series in Economics and Finance 288, Stockholm School of Economics.
  4. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
  5. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-93, June.
  6. Dahlby, Bev & West, Douglas S, 1986. "Price Dispersion in an Automobile Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 418-38, April.
  7. Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
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