Economies of scope

Mazzola JB, Schantz RH (1997) Multiple-Facility Loading Under Capacity-Based Economies of Scope. Naval Research Logistics 44 ... 

The application of CAM in the production offers advantages to a company to develop capabilities by combining traditional economies of scale with economies of scope resulting in the desired... 

They also observed that internal collaboration performs very well provided that potential benefits from economies of scope are high. On the other hand. 

Through a modular organization not only economies of scale, but also economies of scope such as customization or product variation can be achieved (Mikkola 2006). Furthermore, a firm disposes over increased capability to provide a broader range of products when modularization is applied (Hahnan et al. 2003). In addition, time to market of new products can significantly be reduced through composing a product of modules, and new product development can also be accomplished with more flexibility (Baldwin and Clark 1997). Finally, the frequent combination of standardized and approved components induces a high level of product performance (Halman et al. 2003). 

What in effect we are seeing is a fundamental shift away from the economies of scale model, which is volume based and hence implies long production runs with few change-overs, to the economies of scope model, which is based upon producing small quantities of a wider range, hence requiring more change-overs. 

It has been suggested that under the economies of scope model ... 

Small-batch production associated with rapid changeover allows productivity to be maintained by taking advantages of economies of scope. Instead of economies of scale, where quantities of the same thing are made, economies of scope lower costs when quantities of similar things that use the same production resources are made. 

The case of dyes and adhesives, both of which are high R D markets, deserve a final comment. In the latter cases, concentration is higher in Europe but the homogeneity index is lower. This is consistent with the existence of distinct technological trajectories that display economies of scope among themselves. Thus, EU firms in these markets seem to have successfully exploited these opportunities. 

One important reason for that relationship is the existence of economies of scope in the production of invention and innovation because of positive spillovers between different R D projects within a firm. But even more importantly, large chemical firms have sufficiently large sales to cover the fixed costs of R D projects which are very high in industrial chemistry (Freeman and Soete, 1997, p. 234). Thus, we expect a similar pattern of invention and innovation with respect to a particular type of process technologies -technologies that protect water resources. 

Jara-Diaz, S.R. Basso, LJ. (2003) Transport cost functions, network expansion and economies of scope. In Transportation Research Part E, 39(4), 271-288. 

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