Scale and Scope Economies in the Global Advertising and Marketing Services Business

53 Pages Posted: 28 Oct 2003

See all articles by Alvin J. Silk

Alvin J. Silk

Harvard Business School

Ernst R. Berndt

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Abstract

We assess size and scope-related economies in the global advertising and marketing services business. A translog cost function is employed wherein a firm's costs vary according to its scale and two dimensions of the scope of its operations. Parameters of the model are estimated via three stage least squares using annual data for 1989-2001 for an unbalanced panel consisting of the eight largest firms in this industry. A firm's total variable costs are affected by its scale, scope (mix of services and markets served), and by the interaction of the two dimensions of scope. The latter effect suggests that economies of coordination may accompany the strategy of jointly offering advertising and marketing services globally. Estimates indicate that the industry's long-run cost function is subject to very slight economies of scale. Diseconomies of scale accompany growth in volume obtained by extending either breadth of service offerings or market coverage. A small cost advantage, typically of one to two percent, is uniformly associated with joint production of services for the domestic and overseas markets, as compared to splitting up the firm into smaller stand-alone entities. Scope economies of a similar magnitude arise consistently from the joint production of advertising and marketing services.

Suggested Citation

Silk, Alvin J. and Berndt, Ernst R., Scale and Scope Economies in the Global Advertising and Marketing Services Business. HBS Marketing Research Paper No. 03-10. Available at SSRN: https://ssrn.com/abstract=462240 or http://dx.doi.org/10.2139/ssrn.462240

Alvin J. Silk

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6036 (Phone)
617-495-8736 (Fax)

HOME PAGE: http://dor.hbs.edu/fi_redirect.jhtml?facInfo=bio&facEmId=asilk

Ernst R. Berndt (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E52-452
Cambridge, MA 02142
United States
617-253-2665 (Phone)
617-258-6055 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
782
rank
25,862
Abstract Views
3,818
PlumX