Multimarket Contact, Economies of Scope, and Firm Performance

Abstract

We integrate the efficiency and competitive effects of product-market scope choice into a comprehensive model of economic performance and empirically test the model in the context of the U.S. airline industry. Efficiency is influenced by a firm’s scope economies, but the intensity of rivalry is determined by multimarket contact with rivals and their scope economies. The confluence of strong scope economies with multimarket contact results in superior economic performance. However, strong scope economies may not result in superior performance if rivals can obtain similar economies in nonoverlapping markets.