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Discussion Paper Details

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Title: Firm Size Distribution: Testing the 'Independent Submarkets Model' in the Italian Motor Insurance Industry

Author(s): Luigi Buzzacchi and Tommaso Valletti

Publication Date: July 2002

Keyword(s): independent submarkets, insurance companies, price dispersion and size distribution of firms

Programme Area(s): Industrial Organization

Abstract: 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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Bibliographic Reference

Buzzacchi, L and Valletti, T. 2002. 'Firm Size Distribution: Testing the 'Independent Submarkets Model' in the Italian Motor Insurance Industry'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3444