Identifying Scale and Scope Economies Using Demand-Side Data
We propose an empirically tractable method to estimate economies of scale and scope. We start from a micro-founded model of production by a multi-product firm and generate a set of estimating equations for the parameters governing scale and scope economies, together with the distribution of within-firm productivity. A strength of the method is that all parameters can be estimated using demand-side data only (i.e., quantities, prices, demand shifters). We apply this approach to the U.S. beer industry to quantify the importance of scope economies for productive efficiency and evaluate the impact of scale and scope economies on merger analysis.
Scott Orr
