Economies of Score
Posted: 18 Apr 2017 Last revised: 18 Dec 2017
Date Written: April 17, 2017
To introduce a novel generalization of economies of scope, the paper develops a theory of average cost reductions based on enabling products to have multiple features or functions. The process is labelled economies of score. Focusing production costs on the details of product features can lead to more significant average cost reductions relative to standard economies of scope and scale. The multifeatured product is a network graph represented with a binary decision diagram that describes product feature integration for each product. A feature equilibrium is defined. Evidence suggests that the approach is apt for describing smartphone-app industrial organization.
Keywords: economies of scope, economies of scale, product functionality, multi-functional products, multi-feature production.
JEL Classification: L10, L17, L21, L22
Suggested Citation: Suggested Citation