Core business concentration vs. corporate diversification in the US electric utility industry: Synergy and deregulation effects

Many economists such as Wilson (2002) [Wilson, R., 2002. Architecture of power market, Econometrica, 70, 1299-1340] have considered that there are similarities between electricity and gas services in the US electric utility industry. Hence, they expect a synergy effect between them. However, the two businesses do not have technology similarities at the level that the gas service produces a synergy effect with electricity. To examine whether there is a synergy effect of corporate diversification in the industry, we compare electricity-specialized firms with diversified utility firms in terms of their financial performance and corporate value. The comparison indicates that core business concentration is more effective for electric utility firms than corporate diversification under the current US deregulation policy.