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Economies of Scope from Shared Inputs

Author

Listed:
  • Paul S. Koh

    (Yonsei University)

  • Devesh Raval

    (Federal Trade Commission)

Abstract

The prevailing explanation for large, multi-product firms is economies of scope from inputs shared across production lines. Using the Federal Trade Commission's Line of Business Surveys, we show that manufacturers report substantial shared inputs for both capital and management/marketing expenses that are correlated with firm size and scope. We estimate a nested CES production function between line-specific and shared inputs, which are substitutes with a substitution elasticity of 2.6. For the average firm, reducing shared inputs by 50% decreases revenue by 3.4%. Finally, synergies from greater scope economies generated by pooling shared inputs in merger simulations are small.

Suggested Citation

  • Paul S. Koh & Devesh Raval, 2025. "Economies of Scope from Shared Inputs," Working papers 2025rwp-264, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2025rwp-264
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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