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Conglomeration versus strategic focus: evidence from the insurance industry

  • Allen N. Berger
  • J. David Cummins
  • Mary A. Weiss
  • Hongmin Zi

We use data on U.S. insurance companies to examine the validity of the conglomeration hypothesis versus the strategic focus hypothesis for financial institutions. 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.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-40.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-40
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