Skip to main content
SpringerLink
Log in

Information Exchange as a Means of Collusion: The Case of the Italian Car Insurance Market

  • Published:
Journal of Industry, Competition and Trade Aims and scope Submit manuscript

Abstract

This paper employs an econometric methodology (the Panzar-Rosse H-statistic) to test the level of competition in the Italian car insurance market, where in 2000 the Antitrust Authority imposed a conspicuous fine on 39 companies for their anti-competitive behavior deriving from an ad hoc information exchange from 1994 onwards. Our set of results shows that during the years 1998–2003 the group of firms whose business in the motor segment exceeds 60% of total gross premiums has earned revenues as if it were under monopoly or collusive oligopoly conditions, and therefore appears to support the decision of the Antitrust Authority.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. In this paper, the terms “motor vehicle”, “automobile” and “car” will be used as synonyms.

  2. They are: Allianz Subalpina, Allstate, Assimoco, Assitalia, Augusta, AXA, Azuritalia, Bayerische, BNC, Commercial Union, Duomo, Fata, Fondiaria, Gan, Generali, Helvetia, Italiana, ITAS, Lloyd Adriatico, Lloyd Italico, Maeci, Mediolanum, Meie, Milano, Nationale, Nuova MAA, Nuova Tirrena, Piemontese, RAS, Reale Mutua, Royal Insurance, Royal & Sun Alliance, Sai, Sara, Toro, Unipol, Vittoria, Winterthur, Zurigo.

  3. See Porrini (2004), p. 231. Of course, for insurance companies another possibility is that the negative results in the compulsory car liability business are balanced by those characterizing other service lines (like fire-theft coverage, usually profitable), since all of them are generally multi-product firms.

  4. The expression “property liability” is currently used instead of “damage liability”. However, such definition does not fit with what is called “damage insurance” in Italy, because here health insurance is not included in the former but is part of the latter. For this reason, we have chosen to use the old expression.

  5. Scalera and Zazzaro (2007) underline that, after the third EU Directive 92/49 on non-life insurance, which aimed to promote the liberalization of the insurance industry and the creation of a single European market, the amount of fares and claims significantly rose in the motor insurance industries of many countries. They build a model showing that, besides the cost and the collusion hypotheses, the increase in premiums could be due to reduced efforts by the companies to fight fraudulent claims: particularly, in a free pricing regime insurers might gain by reducing monitoring investments so as to commit themselves to higher costs and induce competitors to adopt less aggressive behavior.

  6. See AGCM (2003), pp. 34–36.

  7. This is maintained by ISVAP (2000). It should be added that the cited study focuses exclusively on “non-technical costs”, i.e. general costs, agency network costs and compensation costs. A deeper analysis, considering also scope economies in the insurance industry, is provided by Berger et al. (2000).

  8. For a survey, see Kuhn and Vives (1995).

  9. About the problem of imperfect information in banking and insurance markets, see Pagano and Jappelli (1993) and Rothschild and Stiglitz (1976), respectively.

  10. See also Kuhn (2001), Vives (2002), and Nitsche and von Hinten-Reed (2004).

  11. For comprehensive surveys on the variety of tests that allow the assessment of the degree of competition in an industry, see Gilbert (1984) and Bresnahan (1989).

  12. A thorough justification of the various outcomes can be found in Panzar and Rosse (1987).

  13. As Gelos and Roldos (2004) note, this assumption does not rule out product differentiation, which is allowed for in the monopolistic competitive model.

  14. Among the recent papers on the subject that can give an idea of this flourishing literature, see Coccorese (2004), Gelos and Roldos (2004), and Staikouras and Koutsomanoli-Fillipaki (2006).

  15. Bikker et al. (2006) demonstrate that the level of competition derived from the Panzar-Rosse model is systematically overestimated when revenues divided by total assets are used as dependent variable instead of unscaled revenues.

  16. Some authors calculate this proxy as the personnel expenses divided by total assets: for example, Molyneux et al. (1994) and Bikker and Haaf (2002) for the banking industry, and Murat et al. (2002) for the general insurance industry. In our opinion, if data are available, the labor cost per employee is surely the most accurate way to evaluate the average price of labor. This is done by Shaffer (1982), Nathan and Neave (1989) and Coccorese (2004).

  17. It should be noted that Murat et al. (2002) compute the input prices always dividing each category of expenses by the total assets.

  18. They are: Allianz Subalpina, Assimoco, Assitalia, AXA, BNC, Commercial Union, Duomo, Fata, Fondiaria, Gan, Generali, Helvetia, ITAS, Lloyd Adriatico, Lloyd Italico, Meie, Milano, Nuova MAA, RAS, Royal & Sun Alliance, Sai, Sara, Toro, Unipol, Zurigo.

  19. Our sample (136 observations) is larger than many of those employed in previous papers testing the level of competition. Even when estimating the H-statistic for Model 3 (33 observations), we are line with other studies: as examples, Nathan and Neave (1989) consider 39 observations on trust companies and 33 on mortgage companies, while Shaffer (1993) uses a sample of 25 observations.

  20. This information is contained in the ISIS database.

  21. The list of all the included companies is available from the author upon request.

References

  • AGCM., (2003), Indagine conoscitiva sul settore assicurazione autoveicoli, n. 18, Rome.

  • ANIA., (2002), Italian insurance in 2001, L’Assicurazione Italiana, September, Rome, http://www.ania.it/documenti/ass_italiana/2001eng/2001eng.htm.

  • Bain, J.S., Relation of profit-rate to industry concentration: american manufacturing, 1936–1940, Q J Econ, vol. 65, pp. 293–324, 1951. doi:10.2307/1882217.

    Article  Google Scholar 

  • Bajtelsmit, V.L., Bouzouita, R., Market structure and performance in private passenger automobile insurance, J Risk Insur, vol. 65, pp. 503–514, 1998. doi:10.2307/253662.

    Article  Google Scholar 

  • Berger, A.N., Cummins, J.D., Weiss, M.A., Li, H., Conglomeration versus strategic focus: evidence from the insurance industry, J Financ Intermed, vol. 9, pp. 323–362, 2000. doi:10.1006/jfin.2000.0295.

    Article  Google Scholar 

  • Bikker, J.A., Haaf, K., Competition, concentration and their relationships: an empirical analysis of the banking industry, J Bank Finance, vol. 26, pp. 2191–2214, 2002. doi:10.1016/S0378-4266(02)00205-4.

    Article  Google Scholar 

  • Bikker, J.A., Spierdijk, L., Finnie, P., Misspecification of the Panzar-Rosse Model: Assessing Competition in the Banking Industry, DNB Working Paper, n. 114, 2006.

  • Bresnahan, T.F., The oligopoly solution concept is identified, Econ Lett, vol. 10, pp. 87–92, 1982. doi:10.1016/0165-1765(82)90121-5.

    Article  Google Scholar 

  • Bresnahan, T.F., Empirical studies of industries with market power, in Schmalensee, R., and Willig, R.D., (eds.), Handbook of Industrial Organisation vol. 2, North-Holland: Amsterdam, pp. 1011–1057, 1989.

    Google Scholar 

  • Brozen, Y., Concentration Mergers and Public Policy, MacMillan: New York, 1982.

    Google Scholar 

  • Carroll, A.M., An empirical investigation of the structure and performance of the private workers’ compensation market, J Risk Insur, vol. 60, pp. 185–207, 1993. doi:10.2307/252904.

    Article  Google Scholar 

  • Casu, B., Girardone, C., Bank competition, concentration and efficiency in the single European market, Manch Sch, vol. 74, pp. 441–468, 2006. doi:10.1111/j.1467-9957.2006.00503.x.

    Article  Google Scholar 

  • Choi, B.P., Weiss, M.A., An empirical investigation of market structure, efficiency, and performance in property-liability insurance, J Risk Insur, vol. 72, pp. 635–673, 2005. doi:10.1111/j.1539-6975.2005.00142.x.

    Article  Google Scholar 

  • Claessens, S., Laeven, L., What drives bank competition? Some international evidence, J Money Credit Bank, vol. 36(part 2), pp. 563–584, 2004. doi:10.1353/mcb.2004.0044.

    Article  Google Scholar 

  • Coccorese, P., Banking competition and macroeconomic conditions: a disaggregate analysis, J Int Financ Mark Inst Money, vol. 14, pp. 203–219, 2004. doi:10.1016/j.intfin.2003.07.001.

    Article  Google Scholar 

  • De Bandt, O., Davis, E.P., Competition, contestability and market structure in European banking sectors on the eve of EMU, J Bank Finance, vol. 24, pp. 1045–1066, 2000. doi:10.1016/S0378-4266(99)00117-X.

    Article  Google Scholar 

  • Demsetz, H., Industry structure, market rivalry, and public policy, J Law Econ, vol. 16, pp. 1–9, 1973. doi:10.1086/466752.

    Article  Google Scholar 

  • Demsetz, H., Two systems of belief about monopoly, in Goldschmid, H.J., Mann, H.M., and Weston, J.F. (eds.), Industrial Concentration: The New Learning, Little Brown: Boston, pp. 164–184, 1974.

    Google Scholar 

  • Doyle, M.P., Snyder, C.M., Information sharing and competition in the motor vehicle industry, J Polit Econ, vol. 107, pp. 1326–1364, 1999. doi:10.1086/250099.

    Article  Google Scholar 

  • Gelos, R.G., Roldos, J., Consolidation and market structure in emerging market banking systems, Emerg Mark Rev, vol. 5, pp. 39–59, 2004. doi:10.1016/j.ememar.2003.12.002.

    Article  Google Scholar 

  • Gilbert, R.A., Bank market structure and competition: a survey, J Money Credit Bank, vol. 16, pp. 617–645, 1984. doi:10.2307/1992096.

    Article  Google Scholar 

  • Green, E.J., Porter, R.H., Noncooperative collusion under imperfect price information, Econometrica, vol. 52, pp. 87–100, 1984. doi:10.2307/1911462.

    Article  Google Scholar 

  • Grillo, M., Collusion and facilitating practices: a new perspective in antitrust analysis, Eur J Law Econ, vol. 141, vol. 151–169, 2002. doi:10.1023/A:1016506925486.

    Article  Google Scholar 

  • ISVAP., L’Assicurazione RC Auto in Italia: Analisi e Proposte, Rome. 2000.

  • Iwata, G., Measurement of conjectural variations in oligopoly, Econometrica, vol. 42, pp. 947–966, 1974. doi:10.2307/1913800.

    Article  Google Scholar 

  • Kuhn, K.-U., Fighting collusion: regulation of communication between firms, Econ Policy, vol. 32, pp. 1–37, 2001.

    Google Scholar 

  • Kuhn, K.U., Vives, X., Information exchanges among firms and their impact on competition, Office for Official Publications of the European Community: Luxemburg, 1995.

    Google Scholar 

  • Lau, L., On identifying the degree of competitiveness from industry price and output data, Econ Lett, vol. 10, pp. 93–99, 1982. doi:10.1016/0165-1765(82)90122-7.

    Article  Google Scholar 

  • Mason, E.S., Price and production policies of large-scale enterprise, Am Econ Rev, vol. 29, pp. 61–74, 1939.

    Google Scholar 

  • Molyneux, P., Lloyd-Williams, D.M., Thornton, J., Competitive conditions in European banking, J Bank Finance, vol. 18, pp. 445–459, 1994. doi:10.1016/0378-4266(94)90003-5.

    Article  Google Scholar 

  • Murat, G., Tonkin, R.S., Jüttner, D.J., Competition in the general insurance industry, Z Gesamte Versicherungswissenschaft, vol. 91, pp. 453–481, 2002.

    Google Scholar 

  • Nathan, A., Neave, E.H., Competition and contestability in Canada’s financial system: empirical results, Can J Econ, vol. 22, pp. 576–594, 1989. doi:10.2307/135541.

    Article  Google Scholar 

  • Newey, W., West, K., A simple positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix, Econometrica, vol. 55, pp. 703–708, 1987. doi:10.2307/1913610.

    Article  Google Scholar 

  • Nitsche, R., von Hinten-Reed, N., Competitive impacts on information exchange, Charles River Associates: Brussels, 2004.

    Google Scholar 

  • Novshek, W., Sonnenschein, H., Fulfilled expectations Cournot duopoly with information acquisition and release, Bell J Econ, vol. 13, pp. 214–218. doi:10.2307/3003442.

    Article  Google Scholar 

  • Pagano, M., Jappelli, T., Information sharing in credit markets, J Finance, vol. 43, pp. 1693–1718, 1993. doi:10.2307/2329064.

    Article  Google Scholar 

  • Panzar, J.C., Rosse, J.N., Testing for monopoly equilibrium, J Ind Econ, vol. 25, pp. 443–456, 1987. doi:10.2307/2098582.

    Article  Google Scholar 

  • Peltzman, S., The gains and losses from industrial concentration, J Law Econ, vol. 20, pp. 229–263, 1977. doi:10.1086/466902.

    Article  Google Scholar 

  • Porrini, D., Information exchange as collusive behaviour: evidence from an antitrust intervention in the Italian insurance market, Geneva Pap Risk Insur Issues Pract, vol. 29, pp. 219–233, 2004. doi:10.1111/j.1468-0440.2004.00283.x.

    Article  Google Scholar 

  • Rosse, J.N., Panzar, J.C., Chamberlin vs. Robinson: an empirical test for monopoly rents, Economics Discussion Paper, n. 90, Bell Laboratories. 1977.

  • Rothschild, M., Stiglitz, J.E., Equilibrium in competitive insurance markets: an essay on the economics of imperfect information, Q J Econ, vol. 90, pp. 629–650, 1976. doi:10.2307/1885326.

    Article  Google Scholar 

  • Scalera, D., Zazzaro, A., The unpleasant effects of price deregulation in the European third-party motor insurance market: a theoretical framework, The B.E. J Econ Anal Policy, 7(1). article 50. 2007.

  • Shaffer, S., A non-structural test for competition in financial markets, in Bank Structure and Competition, Conference Proceedings, Federal Reserve Bank of Chicago: Chicago, 225–243, 1982.

    Google Scholar 

  • Shaffer, S., A test of competition in Canadian banking, J Money Credit Bank, vol. 25, pp. 49–61, 1993. doi:10.2307/2077819.

    Article  Google Scholar 

  • Souma, T., Tsutsui, Y., Recent competition in Japanese life insurance industry Discussion Paper 637, Institute of Social and Economic Research: Osaka University, 2005.

    Google Scholar 

  • Staikouras, C.K., Koutsomanoli-Fillipaki, A., Competition and concentration in the new European banking landscape, Eur Financ Manag, vol. 12, pp. 443–482, 2006. doi:10.1111/j.1354-7798.2006.00327.x.

    Article  Google Scholar 

  • Stigler, G.L., A theory of oligopoly, J Polit Econ, vol. 72, pp. 44–61, 1964. doi:10.1086/258853.

    Article  Google Scholar 

  • Turchetti, G., Daraio, C., How deregulation shapes market structure and industry efficiency: the case of the Italian motor insurance industry, Geneva Pap Risk Insur, vol. 29, pp. 202–218, 2004. doi:10.1111/j.1468-0440.2004.00282.x.

    Article  Google Scholar 

  • Vesala, J., Testing for competition in banking: behavioural evidence from Finland, Working Paper E:1, Bank of Finland Studies, 1995.

  • Vives, X., Private information, strategic behaviour and efficiency in Cournot markets, Rand J Econ, vol. 33, pp. 361–376, 2002. doi:10.2307/3087462.

    Article  Google Scholar 

  • Weiss, L.W., The concentration-profits relationship and antitrust, in Goldschmid, H.J., Mann, H.M., and Weston, J.F. (eds.), Industrial Concentration: The New Learning, Little Brown: Chicago, pp. 184–233, 1974.

    Google Scholar 

Download references

Acknowledgements

I wish to thank the participants at the 12th Global Finance Conference (Trinity College, Dublin, Ireland) and at a workshop organized by the Department of Economics and Statistics of the University of Salerno, where earlier versions of this paper were presented and discussed. I am also grateful to three anonymous referees for their valuable comments.

Author information

Authors and Affiliations

  1. Department of Economics and Statistics, CELPE and CSEF, University of Salerno, Salerno, Italy

    Paolo Coccorese

Authors
  1. Paolo Coccorese
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Paolo Coccorese.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Coccorese, P. Information Exchange as a Means of Collusion: The Case of the Italian Car Insurance Market. J Ind Compet Trade 10, 55–70 (2010). https://doi.org/10.1007/s10842-008-0047-9

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10842-008-0047-9

Keywords

JEL Classification

Search

Navigation