Firm Size Distribution: Testing the “Independent Submarkets Model” in the Italian Motor Insurance Industry*

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 fully consistent with the predictions of Sutton (1998). We also show that the degree of skewness in the firm size distribution is related to characteristics such as the population living in an area, its density and the riskiness of a submarket. Keyword: size distribution of firms, independent submarkets, insurance companies JEL Classifications: L11, G22 © by Luigi Buzzacchi, Politecnico di Torino, and Tommaso Valletti, London School of Economics. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.