Working Paper: CEPR ID: DP15084
Authors: Florin Maican; Matilda Orth
Abstract: 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 multi-product 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.
Keywords: economies of scope; productivity; retail; product variety; technology; competition
JEL Codes: L11; L13; L25; L81; M21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher productivity (O49) | Increase in the number of product categories (Y90) |
| Higher productivity (O49) | Increase in sales per product category (Y90) |
| High demand shocks (J23) | Specialize in fewer product categories (L81) |
| High demand shocks (J23) | Sell more of top-selling categories (Y90) |
| Investments in technology (O39) | Increase in both extensive and intensive product margins (L19) |
| Reducing uncertainty in productivity and demand shocks (D89) | Enhances product variety and increases sales and market share (L15) |
| 10% increase in demand shocks (E39) | Decrease in the number of categories (Y90) |