economies of scope


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Economies of scope

Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.

economies of scope

the cost savings which arise by carrying out a number of different activities within the same firm through sharing common inputs or jointly promoting or distributing products. For example, a building society could use its existing branches and staff not only to sell mortgages but also to offer customers other financial services such as insurance, pensions etc. Likewise, Nestlé has used the strategy of UMBRELLA BRANDING to extend its range of instant coffee products all under the ‘Nescafé’ BRAND NAME thereby reducing promotional costs. See DIVERSIFICATION.

economies of scope

the LONG-RUN reduction in AVERAGE (or unit) COSTS that occurs as the scope of the firm's activities increases. A firm can achieve economies of scope by sharing common inputs over a range of its activities or by jointly promoting or distributing its products. For example, a building society could use its existing branches and staff not only to sell mortgages but also to offer customers other financial services such as banking and insurance.

Economies of scope are often an important motive for firms undertaking ‘concentric’ DIVERSIFICATION.

References in periodicals archive ?
Thus, flexible manufacturing technologies provide a strategic real option (Goldhar and Lei 1994) in which high levels of economies of scope and a 'design for response' capability position the firm to enter a broader range of different markets at its own discretion.
Hence, high levels of economies of scope will result in higher levels of economies of scale than would have been possible through an aggregation of low-volume single product plants.
The concepts developed here to analyze pricing of a single product in the presence of economies of scale are directly applicable to the pricing of a set of products in the presence of economies of scope. Economies of scope are said to exist when the costs of joint production of a set of products is less than the sum of the costs of separate production.
The notion of "economies of scope" (Panzar and Willig 1981) was developed to determine whether joint production of products is more cost effective than the separate production of the outputs by multiple firms.
(1990) "Economies of scope in the provision of local public services", National Tax Journal, 43: 61-74.
The first is that they may realize economies of scope by keeping their labor and capital busier than stand-alone facilities.
Smaller and more specialised hospitals, such as the planned Nelson Mandela Paediatric Hospital consisting of 200-300 beds in Johannesburg, also allow for a narrower and more focused scope of activities (economies of scope).
The cost of this prohibition, of course, is the loss of any economies of scope between operation of the platform and provision of the complementary service, whether on the production and design or operating side.
One could also test our assumption of economies of scope by checking how often parents spend time with one child while the other sibling is present.
Many pacific dmcs are small island developing states and dispersion and distance to markets limits economies of scope and scale.
Likewise, in production, there is far-reaching potential for economies of scope and scale - potential that grows even larger in high-tech domains.

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