Harrington and Treber received funding from the International Cemetery, Cremation, and Funeral Association, who contacted Harrington after he testified without compensation in favor of Wisconsin Assembly Bill 523, which would have repealed the state’s anti-combo law.

We estimate that more than a third of funeral homes in Michigan and Wisconsin prior to 1925 were combination firms: three-fourths of them partnered with furniture stores and the rest with liveries. These funeral homes reduced their costs by producing more than just funerals, a phenomenon that economists call economies of scope. Funeral homes that also sold furniture or hauled freight could lower their costs by keeping their capital and labor busy—no twiddling of thumbs or idle woodshops waiting for someone to die.

During epidemics, the cabinetmakers of these combination firms were busy building coffins and having their wagons carry bodies to cemeteries. During happier times, these firms spent more time making cabinets and delivering freight. It is a morbid example of the “peak load” problem, the problem that producers face when their businesses experience surges and slumps in demand and they need to keep costly capital on hand to satisfy the surges. Today, electricity producers must be able to handle surges in demand when temperatures soar and people crank up the air conditioning. Then, funeral homes needed to handle surges in demand when epidemics heated up and families sent for the undertaker.

Over the first half of the 20th century, funeral homes shed their partnerships with furniture stores and liveries as towns turned into cities and funeral directors handled more aspects of burial preparation. At the same time, commercial cemeteries became much more prevalent, both because many church and town cemeteries filled up and because consumers were willing to pay for graves and markers in newly created memorial and garden cemeteries.

Modern Combos—Funeral Homes and Cemeteries Coming Together

Over time, funeral homes naturally gravitated toward combining with cemeteries rather than furniture stores or liveries. In 1934, Hubert Eaton built a funeral home within his Forest Lawn Memorial Park in Glendale, Calif., establishing the first modern funeral home and cemetery combination. Today they are so common that funeral industry professionals commonly use the term “combination firms” to refer to the joint operation and/​or ownership of cemeteries and funeral establishments. Some shorten the term even further, simply calling them “combos.” Similarly, a stand-alone funeral home now means one located outside of a cemetery, rather than being independent of a livery or furniture store.

There are two advantages of combos. The first is that they may realize economies of scope by keeping their labor and capital busier than stand-alone facilities. For example, combos can share facilities. Arrangement rooms that would often sit idle at stand-alone funeral homes could be used to make cemetery arrangements. Also, combos may eliminate the need to collect the same information at two places, first at the stand-alone funeral home and then at the stand-alone cemetery. Savings that accrue from economies of scope may then be passed along to consumers.

The second advantage is that some consumers may prefer to patronize combos. Some might want to work with a single person to choose both funeral services and cemetery goods because they find the process painful and working with a single person will be quicker. They also may have elderly relatives and want the funeral services performed near the gravesite, or live in a congested area and want to avoid having a funeral cortege crawl through snarled streets.

For the empirical component of our study, we used the Nomis Funeral Home and Cemetery Directory—called the “Yellow Book” by industry professionals—to identify combos across the country. The Yellow Book includes nearly every funeral home in the country and most active cemeteries, defined as those still selling gravesites. Additionally, we were able to utilize proprietary information from the cemetery and funeral home industry.

A larger fraction of cemeteries than funeral homes are part of combos because there are far fewer cemeteries than funeral homes in this country. We estimate that 4.4 percent of funeral homes and 13.2 percent of cemeteries are part of combos in states that allow them. But there is tremendous variation in the prevalence of combos across the country. For example, one in eight funeral homes in Arizona and nearly half of the state’s active cemeteries are combos. In contrast, Michigan and Wisconsin have no combos.

The death care industry is evolving toward combo operations. From 2005 to 2012, the number of combos grew by 8.6 percent according to the Nomis directories, a trend that is being driven by consumer demand and economies of scope. So how is it possible that some states have no combos, especially given the increasing prevalence of combos across the country? Only one institution can thwart the natural evolution of markets so completely: government.

State Laws Banning Combos

Michigan and Wisconsin make no bones about it: their laws explicitly declare that cemeteries may not own or operate funeral homes, and funeral homes may not own cemeteries. According to Wisconsin, “No cemetery [may] permit a funeral establishment to be located [there],” nor have a “financial interest” in one. The Michigan law is similar, saying that cemeteries “shall not own, manage, supervise, operate, or maintain, either directly or indirectly, a funeral establishment.”

The industry newsletter Funeral Service Insider identifies Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and the District of Columbia as having laws that “make it very hard for a funeral home and cemetery to have the same owner.” Each of these states has one or more of the following laws:

• Cemeteries and funeral establishments cannot co-locate.
• Firms cannot own both funeral homes and cemeteries.
• Cemeteries must be nonprofit organizations.
• Cemeteries may not employ funeral directors and embalmers.

We think that Connecticut and Vermont should be added to this list of states that legally impede combos. They are easy to overlook because their provisions affecting combos can only be uncovered by carefully reading the statutes line by line. In Connecticut, cemeteries cannot be conducted for “private gain” and may not engage in any business “such as is usually pursued by private individuals.” Vermont’s law strictly limits what funeral directors can do while on cemetery property, prohibiting them from embalming bodies or selling funeral goods or services.

Bottom line: 11 states and the District of Columbia have anti-combo laws that make it impossible to operate funeral homes on or near cemetery property. Forty years ago, the number was higher. Since then, Illinois, Louisiana, and Pennsylvania have repealed their anti-combo laws or had them struck down by courts, while no state has implemented one.

Where are combos? | The Yellow Book doesn’t identify combos, so we had to search for them ourselves. We merged the subdirectories of funeral homes and cemeteries, and then sorted them by ZIP code, name, street address, and telephone number. Most combos were easy to identify, having identical names, phone numbers, and addresses. Others were a bit harder to pick out of the crowd, leading us to spend hours looking at satellite maps, convincing ourselves that funeral homes were within easy walking distance of the nearest graves.

Anti-combo laws are extraordinarily effective at barring the entry of combos. We found only two possible combos in the 11 states with these laws. One of us visited one of those potential combos, Rose Hill Funeral Home and Memorial Park in Connecticut, and asked about purchasing a gravesite. Pointing to the cemetery, an attractive young funeral director said, “You need to go to the cemetery office to get information about graves.” Acting puzzled, I asked, “Why can’t you help me?” “Technically, we’re different firms,” she responded, “and I’m not allowed to talk to you about graves.” A few minutes later, I was talking to a grizzled old guy dressed in dusty overalls about gravesites. When I asked him about the cost of graveside services, he pointed across the driveway and said, “I can’t tell you about that, but they can.” Hence, Rose Hill is not a genuine combo because it does not share facilities or labor. That is also the case for the other potential combo, Michigan Memorial Park.

Tale of four cities | Figure 1 illustrates the dramatic effect of anti-combo laws on funeral markets. The top two maps are for similarly sized metropolitan statistical areas (MSAs) Milwaukee and Kansas City, and the bottom two are of larger metropolitan areas, Detroit and Dallas–Fort Worth. The MSAs on the left side are located in states—Wisconsin and Michigan—with anti-combo laws, while the two on the right come from states—Kansas, Missouri, and Texas—that allow cemeteries to own or operate funeral homes.

Looking at the maps, it is clear that metropolitan areas in states without anti-combo laws have a substantial number of combos, but they still have plenty of stand-alone funeral homes. Stand-alone funeral homes serve an important role, catering to the people in the neighborhoods that surround them. It is clear from the maps that the existence of combos does not diminish the importance of stand-alone funeral homes. This has been the case in Illinois, where 30 years removed from the elimination of its anti-combo law, the state is home to just 20 combos, representing less than 2 percent of funeral homes statewide.

The two largest companies in the death care industry, Service Corporation International (SCI) and Stewart Enterprises, own seven of the 14 combos in Kansas City and 11 of the 20 combos in Dallas–Fort Worth. Neither firm owns more than a third of the combos in either metropolitan area. In these markets, combos owned by SCI and Stewart compete against one another, against a similar number of combos owned by other firms, and against a large number of stand-alone funeral homes and cemeteries. This evidence, together with the pattern of funeral homes in Milwaukee and Detroit, convinces us that the extent of competition in markets of states without anti-combo laws is at least as great as that of states with them. Indeed, we believe that the extent of competition is greater in states without anti-combo laws because the combos offer consumers more variety. And the increased competition ought to induce combos (and stand-alones that offer similar products and services) to pass along some of their cost savings in the form of lower prices.

Which service? | A young man wanted to pay his respects to an elderly neighbor who died, but could not decide whether to go to the evening visitation, the memorial service in the morning, or the following graveside service. He turned to an online advice forum, asking which one an acquaintance should go to. The top-rated response was, “I would go to the visitation and skip the services.” Another was, “To me, the graveside service is for family and close friends; the funeral is for anyone who knew the deceased to attend, if they wish; and the visitation is for anyone to pay their respects to the family.”

Suppose a family wants to choose a funeral home and cemetery to minimize the costs to family, friends, and acquaintances of traveling to events, assuming that the visitation and memorial service are both at the funeral home. If their loved one had lived in the area for a long time, the family might want to choose a neighborhood funeral home because there would be a lot of people who wanted to pay their respects and only a relatively small number going to the graveside service. On the other hand, if their loved one had recently moved to the area or had spent years in a retirement community away from where he or she wanted to be buried, it would be more convenient for nearly everyone if they chose a funeral home affiliated with or nearby the cemetery.

Cemeteries and funeral homes are not always perfect together, nor always better apart; the best arrangement depends on the circumstances of the family making the choice. For long-time residents, for example, it is often better to have geographically separate services, so that the funeral home is closer to neighbors of their loved ones. For others, it is a godsend to have them together, for example, making it easier for an elderly sibling of the deceased to get to the gravesite—imagine navigating a walker or wheelchair in and out of automobiles, funeral homes, and cemetery gravesites. States with anti-combo laws justify such laws by claiming that cemeteries and funeral homes are always better apart, which we believe is simply not true.

Owners and managers of chains of funeral homes and cemeteries recognize that a one-size-fits-all strategy doesn’t work for the death care industry any better than it does for the clothing industry. People like variety; it’s true of clothing and it’s true of funeral and cemetery services. Some people choose cremation, others burial; some want their loved one buried in a simple pine coffin, others want a stainless steel casket; some want a green burial, others want a family mausoleum. Similarly, some people prefer a stand-alone funeral home; others prefer a funeral home near the gravesite.

Chains of funeral homes and cemeteries, both publicly owned and privately owned, cater to consumers by owning both stand-alone funeral homes and ones located in cemeteries. Their investment in this portfolio is driven by the demands of the consumers who differ in their preferences across the characteristics of funeral homes.

Consumers Like Combos: They’re Saying So with Their Feet!

One way to understand the effects of anti-combo laws on consumers is to look at states without such laws to see what sorts of consumers choose combos rather than stand-alone funeral homes to handle the funerals of their loved ones. If there aren’t many differences, then consumers might not be badly harmed by the anti-combo laws. If there are, then similar consumers in the states that prohibit combos are being harmed by anti-combo laws.

To estimate whether funeral consumers differ significantly in their preferences concerning the type of funeral home they choose requires information on individual consumers who arranged funerals, some of which were handled by stand-alone funeral homes and others by combos. The International Cemetery, Cremation, and Funeral Association arranged for us to have unfettered access to proprietary data on the funerals handled by stand-alone funeral homes and combo funeral homes. We were given a list of metropolitan areas for which the data were available, and we chose to examine Kansas City and Dallas–Fort Worth because we wanted to compare their funeral markets with Milwaukee’s and Detroit’s, which are located in states with stringent anti-combo laws.

Data | We have information on 14,701 funerals during the period 2010–2011. In particular, we have the amount consumers spent on funerals and their addresses, but not characteristics such as their incomes or races. We estimated these missing characteristics using the socio-economic characteristics of their neighborhoods. Specifically, we used consumers’ addresses to identify the Census block group in which they lived and then assigned them the socio-economic characteristics of the people living in that block group during the 2000 Census. We also computed their distance from every funeral home and cemetery in their metropolitan area, including the one handling their funeral.

Funeral markets are localized, typically 5 to 30 miles in radius. This suggests that consumers traveling longer distances may be driven by different forces than typical local consumers. To prevent outliers from skewing the analysis, consumers located more than 30 miles from their chosen funeral home were excluded from the regression analysis, as were observations with missing values for one or more of the variables.

Table 1 presents regressions using the Kansas City and Dallas–Fort Worth data and two different dependent variables: column 1 uses the log of the distance between the consumer’s residence and the funeral home he or she chose, and column 2 uses the log of the amount the consumer spent at the funeral home.

We were principally interested in the effects of the first two explanatory variables; the other explanatory variables are included as controls. The estimated effects of the control variables should, and do, make sense. For example, the estimated effect of the median income variable in column 2 is consistent with the idea that consumers living in higher-income neighborhoods are likely to spend more on funerals.

Willingness to travel and spend | The empirical results imply that consumers, on average, are willing to travel farther to reach combos. They travel 32.7 percent farther, on average, to reach combos relative to stand-alones—a distance of approximately 2.4 miles. Consumers are voting with their feet (and gasoline), clearly revealing that many of them prefer combination firms.

What consumers pass on the way can also be revealing. Some coffee-drinkers express their preference for Starbucks coffee over Dunkin’ Donuts by driving past Dunkin’ Donuts to get their fix at Starbucks. Others drive in the opposite direction, passing Starbucks to get to Dunkin’ Donuts. Passing one to get to the other tells us that coffee drinkers do not view the different brands of coffee as perfect substitutes: some people have a taste for Starbucks, others for Dunkin’ Donuts. Similarly, consumers will drive past stand-alone funeral homes on their way to ones located at cemeteries if they prefer having funeral services near gravesites. We found that consumers choosing combination firms passed, on average, three more funeral homes closer to their home than those choosing stand-alone firms. The fact that consumers don’t just drive longer distances, but also pass up more alternatives, indicates that the opportunity to choose a combo is highly valued by consumers. The absence of combination firms would clearly harm those consumers.

Funeral homes handling a larger volume of funerals can more efficiently utilize expensive resources such as embalming, viewing, and ceremonial rooms—facilities whose costs are largely fixed.

Combos operate at lower costs and should be induced to pass on a percentage of the cost savings to consumers via competition. However, our research indicates that consumers spend more money on funerals once they get to combos. Column 2 tells us that consumers at combo funeral homes spend more than those at stand-alone funeral homes, holding distance traveled and control variables constant. Proponents of anti-combo laws interpret this as evidence that combos charge more for funerals than stand-alone funeral homes and, hence, anti-combo laws protect consumers against high prices. This interpretation implies combos have market power. But Figure 1 illustrates that there are many combos in Kansas City and Dallas–Fort Worth, and no single firm owns more than a third of them. Such conditions are ill-suited for combos to sustain higher prices. Also, Figure 1 reveals that stand-alones are much more prevalent than combos, so the nearest funeral home to most consumers will be a stand-alone. It is implausible that consumers are driving past lower-cost stand-alones simply to pay higher prices at combos.

We believe consumer preferences, not higher prices, are driving greater spending at combos. Consumers are purchasing unique products and services offered by combos, and their willingness to pay for more elaborate funerals is greater because of the convenience of having gravesites near the funeral home and all of the arrangements handled by a single funeral director.

Key Cost Advantage of Combos: They Keep Inputs Busier

Anti-combo laws harm consumers by limiting their choices, but their negative impact on social welfare also occurs through another channel: costs of production. Funeral homes handling a larger volume of funerals can more efficiently utilize expensive resources such as embalming, viewing, and ceremonial rooms—facilities whose costs are largely fixed, as they do not vary with the number of funerals handled. One funeral home handling 100 funerals a year and another handling 150 are likely to possess similar facilities, which will sit idle more often in the first funeral home. The funeral home handling a larger volume of funerals will enjoy lower average costs because it can spread out similar fixed costs over 50 percent more funerals. In smaller communities where the number of deaths is small, such cost advantages may be out of reach. However, in bigger communities, larger funeral homes can more efficiently utilize the fixed resources necessary to handle funerals.

Firms can also reduce their average costs through economies of scope—the joint production of two or more goods that share the same inputs. For example, Walmart often sells groceries alongside retail goods. Much of the infrastructure in place for retail operations, such as purchasing systems, warehouses, parking lots, and checkout clerks, can be used jointly to sell groceries. Spreading infrastructure costs across both types of goods allows Walmart to obtain lower average costs than individual retailers and grocers.

Similar cost savings exist in the death care industry. Joint production of funeral and cemetery goods and services at combos can keep labor and capital busier than stand-alone facilities. Rooms for arranging funerals may also be used to sell burial plots. Detailed information collected from a family may happen once at combos, while stand-alone funeral homes and cemeteries would each need to staff this task, repeating an often painful experience for families dealing with the emotional impact of the death of a loved one.

Anti-combo laws inhibit the ability of firms to capture economies of scale and scope by prohibiting the joint operation of funeral homes and cemeteries. Effectively, these laws force funeral homes and cemeteries to utilize more resources than are often necessary. This further diminishes social welfare as fewer resources, including hours of labor, available land, and energy, are available for other pursuits. As long as combos compete against one another, as Figure 1 suggests they do, some or all of the cost savings will be passed on to consumers via lower prices. Anti-combo laws prevent these savings, and as a result cause consumers to pay higher prices.

Cost Savings from Repealing Anti-Combo Laws

It is possible to get a sense of the potential cost savings that could be recouped were anti-combo laws repealed. A simple way to estimate the average cost of producing funerals by different funeral homes is to divide their total costs by the number of funerals they handle. This method is simple, but inaccurate. Consider two identical funeral homes that serve families who prefer wooden caskets but come from different neighborhoods, one of which has a higher median income than the other. Since higher-income families are more likely to choose cherry caskets over pine ones, the total cost of handling their funerals is higher, not because their funeral home is failing to exploit economies of scale or scope, but simply because the wholesale price of a cherry casket is higher than the wholesale price of a pine casket.

Funeral homes frequently set the retail price of caskets as a simple multiple of the wholesale price. For example, suppose the two funeral homes described above set their retail prices of caskets equal to three times the wholesale prices. Since the wholesale prices of pine and cherry caskets are roughly $750 and $1,500 respectively, their retail prices would be $2,250 and $4,500. In this case, the cost-to-revenue ratio of both types of caskets is 0.33. That ratio gives us the right answer: the funeral homes are identical, neither one having “lower costs” than the other, with the only difference being that one sells more cherry caskets than the other.

As long as combos compete against one another, some or all of the cost savings will be passed on to consumers via lower prices. Anti-combo laws prevent these savings, and as a result cause consumers to pay higher prices.

Now consider two identical funeral homes where the only difference is that one is located in a cemetery. The combo funeral home has a cost advantage because it can keep its labor and capital busier. As a result, the combo funeral home has a lower cost-to-revenue ratio when looking just at the funerals it handles because of economies of scope and scale.

Proponents of anti-combo laws would argue differently, claiming that the combo’s lower cost-to-revenue ratio is not due to lower costs, but instead to higher revenues created by charging allegedly higher prices. Again, this interpretation is not supported by the evidence. As previously discussed, Figure 1 reveals that there are many combos in Kansas City and Dallas–Fort Worth, with no single firm owning more than a third of them. Also, Figure 1 illustrates that there are a slew of stand-alone funeral homes in each city. Hence, combos have plenty of competitors, making it implausible that they would have dominant market power. Instead, we believe that their lower cost-to-revenue ratios are generated by economies of scale and scope.

Savings per funeral | There are substantial savings from having a funeral handled by a combo rather than a stand-alone: our estimates range from $492 to $880. These estimates equal the difference in cost-to-revenue ratios between combos and stand-alones multiplied by the average funeral expenditures at stand-alone funeral homes. The lower bound of the range results from excluding the funeral homes with the lowest and highest cost-to-revenue ratios.

Predicted number of new combos | The total cost savings of repealing anti-combo laws also depend on the number of combos that would arise in the wake of repeal. To estimate this, we looked at the pattern of combos across counties in states that do not have anti-combo laws. We ran two regressions: one that estimated the determinants of whether counties had combos, and a second that estimated the number of combos that would be present if they were allowed. We found that combo firms are more likely to be found in counties with larger populations, higher median incomes, and fewer people born within the state. Plugging the characteristics of counties in states with anti-combo laws into these equations allowed us to predict the numbers of combos they would have if the laws were repealed. Summing over the counties of each state produced the estimates reported in the first column of Table 2.

Our estimates imply that repealing the anti-combo laws would add another 126.6 combos, a 24.6 percent increase over the 718 that currently exist. That sounds about right, given that the anti-combo-law states contain 25.5 percent of the country’s population. The appearance of these new combos would not be instant; some of them would arise quickly, others wouldn’t arise for years. For example, anti-combo laws in Illinois, Louisiana, and Pennsylvania have either been repealed or overturned by courts in the last 40 years, but together these states have just 48 combos, which is approximately two-thirds of our long-run prediction for these states based on the characteristics of their counties.

Savings over 20 years | Given that a typical combo handles roughly 300 funerals per year, the estimated total cost savings to the public of repealing anti-combo laws nationwide range from $18.7 million to $33.4 million per year. But these savings occur year after year. Using a discount rate of 3.5 percent (recommended by the federal Office of Management and Budget), the savings range from $266 million to $475 million over a 20-year period. Table 2 presents the corresponding numbers for the 11 states and the District of Columbia that currently have anti-combo laws.

Conclusion

On February 28, 2012, the Wisconsin Assembly held hearings on Assembly Bill 523, which would have repealed Wisconsin’s law that prohibits cemeteries from operating funeral homes. The hearing room—the same one used in Johnny Depp’s movie Public Enemies—was packed with funeral directors and cemeterians. Many more funeral directors stood outside, wearing buttons urging legislators to vote no. Over several hours, the lawmakers listened to 24 people testifying for and against Assembly Bill 523. Most told stories, often emotional ones, about why it would be extremely harmful or beneficial to have the anti-combo law repealed. Near the end of the hearings, one committee member urged both sides not to vilify one another and said that what was needed was better empirical evidence on the effects of repealing the anti-combo law.

Only a few tidbits of evidence were presented at the hearings, principally by a representative of the Funeral Service and Cremation Alliance of Wisconsin (FSCAW) and one of us, David E. Harrington. The FSCAW representative presented a chart illustrating that there were far fewer licensed funeral establishments in Kansas City (53) than Milwaukee (91), despite having roughly equivalent populations. Pointing to this evidence, she argued that “repealing Wisconsin’s combo law” would limit “consumer choices.” It’s simply not true. She badly underestimated the number of funeral homes in Kansas City because she only counted those located on the Missouri side of the city. The 2012 Yellow Book lists 114 funeral homes in Kansas City and the 2007 Economic Census counts 108 funeral establishments with paid employees. The FSCAW representative also presented “evidence” on the costs of funerals in each city based on calling a small handful of funeral homes in each city.

For Harrington’s testimony, we produced an estimate of the cost of anti-combo laws using state level data from the 2007 Economic Census. Using data that allow us to better identify the effects of anti-combo laws; we estimate that society will save at least $266 million over the next 20 years on caring for its dead if anti-combo laws were repealed. That money represents real resources that are being wasted because of the laws, e.g., workers twiddling their fingers, empty visitation rooms, and duplication of arrangement conferences. But that does not include the losses to consumers from limiting their choice of funeral homes. The data clearly reveal that many consumers are willing to go the extra mile, or miles, to get to a combo funeral home. Legislators ought to go the extra mile for their constituents and repeal their anti-competitive anti-combo laws.

Readings

• “Bill in Wisconsin Seeks to Pave the Way for Combination Operations.” Funeral Service Insider, January 16, 2012.
• Economics of Strategy, by David Besanko, Mark Shanley, and David Dranove. John Wiley and Sons, 2009.
• “Markets: Preserving Funeral Markets with Ready-to-Embalm Laws,” by David E. Harrington. Journal of Economic Perspectives, Vol. 21, No. 4 (2007).
• “Testimony on Assembly Bill 523 before the Assembly Committee on Consumer Protection and Personal Privacy,” as published by the Wisconsin Organization for Responsible Consumerism, February 28, 2012.
• The Last Great Necessity: Cemeteries in American History, by David C. Sloane. Johns Hopkins University Press, 1995.