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. We find that 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 [Sutton, J., 1998. Technology and market structure. MIT Press, Cambridge, MA.]. 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.