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臺大管理論叢
第
27
卷第
2S
期
311
The Impact of Concentration and Efficiency on Market
Competition: An Analysis of Japanese Non-Life Insurance Industry
1. Introduction
In this paper, we analyze the impact of market concentration and firm efficiency on
market competition level by using the Japanese non-life insurance industry for the period
2001 to 2012. We follow the methods by Fernández de Guevara et al. (2005) and Fernández
de Guevara and Maudos (2007) to measure market power, using the Lerner index as a proxy
of market power level. The Lerner index represents the markup of price over marginal costs;
a large Lerner index implies that insurers have high market power and are very competitive.
For a perfectly competitive firm, the index equals 0 (i.e., the price equals the marginal costs),
implying that such a firm has no market power. For a monopolistic firm, the index is close to
1 because the price is far from its marginal costs. In addition, we measure the concentration
of the industry by using the Herfindahl-Hirschman index (HHI), and efficiency measures
calculated through data envelopment analysis (DEA) are used for company efficiencies.
We use endogeneity tests to ensure our efficiency and concentration measures are not
compromised by the problem of endogeneity. Because we do not find endogeneity problems,
we further examine our data using the fixed-effect model. Our results show that both the
concentration level and efficiency of the firm have negative effects on market competition.
The higher the concentration or the firm efficiency, the higher the market power and thus the
market competition level is lower. On further stratifying our sample according to the level of
market power, we find that the negative relationship between concentration and market
competition only exists in the subsample with higher market power. In addition, we find that
specialization in major products such as auto lines helps increase the market power of the
firm, but this result only exists in the subsample of firms that already have higher market
power.
Our contributions to the literature are as follows. First, we believe we are the first to use
the Lerner index as a proxy to examine the impact of concentration and efficiency on market
competition in the insurance industry. Second, Japan has had a series of mergers and
Vivian Shih-Ching Jeng
, Associate Professor, Department of Risk Management and Insurance, National
Chengchi University
Kili Chi-Ling Wang
, Professor, Department of Insurance, Tamkang University
Kahlen Wei-Hsian Hsiao
, Account Officer, Department of Consumer Finance, CTBC Bank