IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/9965.html
   My bibliography  Save this paper

Scale and Scope Economies in the Global Advertising and Marketing Services Business

Author

Listed:
  • Alvin J. Silk
  • Ernst R. Berndt

Abstract

We assess size and scope-related economies in the global advertising and marketing services business. A translog cost function is employed wherein a firm's costs vary according to its scale and two dimensions of the scope of its operations. Parameters of the model are estimated via three stage least squares using annual data for 1989-2001 for an unbalanced panel consisting of the eight largest firms in this industry. A firm's total variable costs are affected by its scale, scope (mix of services and markets served), and by the interaction of the two dimensions of scope. The latter effect suggests that economies of coordination may accompany the strategy of jointly offering advertising and marketing services globally. Estimates indicate that the industry's long-run cost function is subject to very slight economies of scale. Diseconomies of scale accompany growth in volume obtained by extending either breadth of service offerings or market coverage. A small cost advantage, typically of one to two percent, is uniformly associated with joint production of services for the domestic and overseas markets, as compared to splitting up the firm into smaller stand-alone entities. Scope economies of a similar magnitude arise consistently from the joint production of advertising and marketing services.

Suggested Citation

  • Alvin J. Silk & Ernst R. Berndt, 2003. "Scale and Scope Economies in the Global Advertising and Marketing Services Business," NBER Working Papers 9965, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9965
    Note: IO ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w9965.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. R. E. Caves & M. E. Porter, 1977. "From Entry Barriers to Mobility Barriers: Conjectural Decisions and Contrived Deterrence to New Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 91(2), pages 241-261.
    2. Schmidt, Peter, 1978. "A note on the estimation of seemingly unrelated regression systems," Journal of Econometrics, Elsevier, vol. 7(2), pages 259-261, June.
    3. Alvin J. Silk & Ernst R. Berndt, 1993. "Scale and Scope Effects on Advertising Agency Costs," Marketing Science, INFORMS, vol. 12(1), pages 53-72.
    4. Schmalensee, Richard & Silk, Alvin J & Bojanek, Robert, 1983. "The Impact of Scale and Media Mix on Advertising Agency Costs," The Journal of Business, University of Chicago Press, vol. 56(4), pages 453-475, October.
    5. MacDonald, Glenn M & Slivinski, Alan, 1987. "The Simple Analytics of Competitive Equilibrium with Multiproduct Firms," American Economic Review, American Economic Association, vol. 77(5), pages 941-953, December.
    6. Bailey, Elizabeth E & Friedlaender, Ann F, 1982. "Market Structure and Multiproduct Industries," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 1024-1048, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kox, Henk L.M. & Leeuwen, George van & Wiel, Henry van der, 2010. "Competitive, but too small - productivity and entry-exit determinants in European business services," MPRA Paper 24389, University Library of Munich, Germany.
    2. Kox, Henk L.M. & Van Leeuwen, George & Van der Wiel, Henry, 2011. "Being numerous does not yield efficiency - Productivity and entry-exit determinants in European business services," MPRA Paper 106166, University Library of Munich, Germany, revised Sep 2011.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arzaghi Mohammad & Berndt Ernst R. & Davis James C. & Silk Alvin J., 2012. "The Unbundling of Advertising Agency Services: An Economic Analysis," Review of Marketing Science, De Gruyter, vol. 10(1), pages 1-55, December.
    2. Alvin J. Silk & Ernst R. Berndt, 1994. "Costs, Institutional Mobility Barriers, and Market Structure: Advertising Agencies as Multiproduct Firms," NBER Working Papers 4826, National Bureau of Economic Research, Inc.
    3. Sharon Horsky, 2006. "The Changing Architecture of Advertising Agencies," Marketing Science, INFORMS, vol. 25(4), pages 367-383, 07-08.
    4. Alvin J. Silk & Ernst R. Berndt, 1994. "Costs, Institutional Mobility Barriers, and Market Structure: Advertising Agencies as Multiproduct Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(3), pages 437-480, September.
    5. Silk, Alvin J. & Berndt, Ernst R., 1990. "Scale and scope effects on advertising agency costs," Working papers 3204-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Mohammad Arzaghi & Ernst R. Berndt & James C. Davis & Alvin J. Silk, 2008. "Economic Factors Underlying the Unbundling of Advertising Agency Services," NBER Working Papers 14345, National Bureau of Economic Research, Inc.
    7. Ferguson, Allen R., 1986. "Mega-Railroads and the Theory of contestable markets," Transportation Research Forum Proceedings 1980s 311817, Transportation Research Forum.
    8. Andrew von Nordenflycht, 2011. "Firm Size and Industry Structure Under Human Capital Intensity: Insights from the Evolution of the Global Advertising Industry," Organization Science, INFORMS, vol. 22(1), pages 141-157, February.
    9. Sharon Horsky & Steven C. Michael & Alvin J. Silk, 2008. "The Internalization of Advertising Services: An Inter-IndustryAnalysis," Harvard Business School Working Papers 09-007, Harvard Business School.
    10. Alvin J. Silk & Charles King III, 2008. "Concentration Levels in the U.S. Advertising and Marketing Services Industry: Myth vs. Reality," Harvard Business School Working Papers 09-044, Harvard Business School.
    11. Chang-Yang Lee & Ji-Hwan Lee & Ajai S. Gaur, 2017. "Are large business groups conducive to industry innovation? The moderating role of technological appropriability," Asia Pacific Journal of Management, Springer, vol. 34(2), pages 313-337, June.
    12. Silk Alvin J. & Berndt Ernst R., 2004. "Holding Company Cost Economies in the Global Advertising and Marketing Services Business," Review of Marketing Science, De Gruyter, vol. 2(1), pages 1-51, June.
    13. Faouzi Bensebaa, 2003. "La dynamique concurrentielle:défis analytiques et méthodologiques," Revue Finance Contrôle Stratégie, revues.org, vol. 6(1), pages 5-37, March.
    14. Hałaj, Grzegorz & Żochowski, Dawid, 2006. "Strategic groups in Polish banking sector and financial stability," MPRA Paper 326, University Library of Munich, Germany.
    15. Jackie Krafft & Isabelle Nicolaï, 1995. "Commitment Procedures In R&D Investments : An Examination Of Different Varieties," Post-Print hal-01799270, HAL.
    16. Chang, Sungyong & Kim, Hyunseob & Song, Jaeyong & Lee, Keun, 2021. "Dynamics of Imitation versus Innovation in Technological Leadership Change: Latecomers’ Catch-up Strategies in Diverse Technological Regimes," SocArXiv b8fae, Center for Open Science.
    17. Raquel Ortega-Argilés & Rosina Moreno, 2005. "Firm Competitive Strategies And The Likelihood Of Survival - The Spanish Case," ERSA conference papers ersa05p347, European Regional Science Association.
    18. Carroll, Charles, 1998. "Interdependence and the social structure of rivalry," Research Report 98B24, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    19. Luís Cabral, 2018. "We’re Number 1: Price Wars for Market Share Leadership," Management Science, INFORMS, vol. 64(5), pages 2013-2030, May.
    20. Ding, John Y., 1993. "Toward a Framework for Analyzing Multimarket Contact and Multinational Competition," Occasional Papers 233154, Regional Research Project NC-194: Organization and Performance of World Food Systems.

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9965. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.