Working Paper No. 1247

Determinants of Economies of Scope in Retail

Published: November 8, 2018, revised August 2019 and July 2020Pages: 51Keywords: Economies of scope; Productivity; Retail; Product variety; Technology; CompetitionJEL-codes: L11; L13; L25; L81; M21

Determinants of Economies of Scope in Retail Florin Maican and Matilda Orth


This paper studies the determinants of economies of scope and quantifies their impact on the extensive and intensive product margins in retail. We use a framework based on a multiproduct technology to model stores’ incentives to expand product variety. Using novel Swedish data on product categories and stores, we find that high-productivity stores offer more product categories and sell more of all product categories. Stores with high demand shocks specialize in fewer product categories and sell more top-selling product categories. Policy simulations show that investments in technology increase the extensive and intensive product margins, especially benefitting stores in urban markets because of their productivity advantage. Learning from demand to increase productivity and variety is crucial in rural markets. Reducing the role of uncertainty in both productivity and demand shocks endorses product variety and raises sales and market share.

 

 

Matilda Orth

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matilda.orth@ifn.se

Florin Maican

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Ph: +46 31 786 4866
Mob: +46 76 235 3039
florin.maican@ifn.se

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