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Testing for Vertical Economies of Scope: An Example from US Pig Production

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  • Azzeddine M. Azzam

Abstract

A firm operating in two or more stages of production is said to have vertical economies of scope if the costs of jointly producing two or more vertically adjacent products is less than the costs of producing the products independently. As important as those economies are in theory, they have so far received no empirical treatment compared to scope economies in multi‐output production, especially in agriculture. This paper tests for vertical economies of scope in US pig production, using 1990 firm‐level cost data. Based on the Wilcoxon matched‐pairs signed‐rank test, no evidence of vertical economies was found, meaning that it was no more or less costly to produce pork in a farrow‐to‐finish setting than with separate feeder‐pig production and finishing.

Suggested Citation

  • Azzeddine M. Azzam, 1998. "Testing for Vertical Economies of Scope: An Example from US Pig Production," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(3), pages 427-433, September.
  • Handle: RePEc:bla:jageco:v:49:y:1998:i:3:p:427-433
    DOI: 10.1111/j.1477-9552.1998.tb01282.x
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    File URL: https://doi.org/10.1111/j.1477-9552.1998.tb01282.x
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    1. Jay T. Akridge & Thomas W. Hertel, 1986. "Multiproduct Cost Relationships for Retail Fertilizer Plants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(4), pages 928-938.
    2. Rhodes, V. James, 1990. "U.S. Contract Production of Hogs," Miscellaneous Reports 257763, University of Missouri Columbia, Department of Agricultural Economics.
    3. Ann F. Friedlaender & Clifford Winston & Kung Wang, 1983. "Costs, Technology, and Productivity in the U.S. Automobile Industry," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 1-20, Spring.
    4. John C. Panzar & Robert D. Willig, 1977. "Economies of Scale in Multi-Output Production," The Quarterly Journal of Economics, Oxford University Press, vol. 91(3), pages 481-493.
    5. Gilligan, Thomas & Smirlock, Michael & Marshall, William, 1984. "Scale and scope economies in the multi-product banking firm," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 393-405, May.
    6. Kaserman, David L & Mayo, John W, 1991. "The Measurement of Vertical Economies and the Efficient Structure of the Electric Utility Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 483-502, September.
    7. Evans, David S & Heckman, James J, 1984. "A Test for Subadditivity of the Cost Function with an Application to the Bell System," American Economic Review, American Economic Association, vol. 74(4), pages 615-623, September.
    8. J. Fernandez-Cornejo & C. M. Gempesaw II & J. G. Elterich & S. E. Stefanou, 1992. "Dynamic Measures of Scope and Scale Economies: An Application to German Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(2), pages 329-342.
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    Cited by:

    1. Néstor Duch, 2005. "Vertical linkages, agglomeration and the organization of production in European regions," Working Papers 2005/6, Institut d'Economia de Barcelona (IEB).
    2. Mayen, Carlos D. & Balagtas, Joseph Valdes & Alexander, Corinne E., 2009. "Vertical Economies of Scope for Organic and Conventional Dairy Farms in the United States," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49409, Agricultural and Applied Economics Association.
    3. Ohe, Yasuo & Kurihara, Shinichi, 2013. "Evaluating the complementary relationship between local brand farm products and rural tourism: Evidence from Japan," Tourism Management, Elsevier, vol. 35(C), pages 278-283.
    4. Campos Labbé, Mónica, 2003. "The economics of technologies in Swedish pig production," Department of Economics publications 459, Swedish University of Agricultural Sciences, Department of Economics.
    5. Néstor Duch, 2005. "Vertical linkages, agglomeration and the organization of production in European regions," Working Papers 2005/6, Institut d'Economia de Barcelona (IEB).

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