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Economies of scope exist when it is cheaper to produce two products together (joint production) than to produce them separately.

For example, it may be less costly to provide air service from point A to points B and C with one aircraft than have two separate air flights, one to point B and another to point C. Similarly, a steer produces beef and hide and it may be inefficient to breed steers separately for beef and for hide.

While many factors such as technology may explain economies of scope, of particular importance is the presence of common input(s) and/or complementarities in production. Firms may often endeavour to exploit economies of scope in order to produce and offer multiple products at lower costs.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.


Statistical Theme: Financial statistics

Created on Thursday, January 3, 2002

Last updated on Wednesday, January 4, 2006