Economies of scope in the U.S. telecommunications industry

Abstract

This study examines whether the existence of scope economies leads to reductions in unit costs for a sample of the key firms making up the local exchange sector of the United States telecommunications industry. Data for the years 1988 to 1992 are examined and the results establish that the generation of multiple outputs, using the resources infrastructure that the firms possess, does lead to reduction in average unit costs for the firms studied. The results thus shed light on a hitherto empirically ambiguous issue in telecommunications research, the relationship between diversity of operations and firm-level efficiency. Additionally, the deployment of digital technology has a positive and significant impact in reducing costs, across the multiple cost categories that are analyzed, providing support for the notion that technology diffusion is positively associated with superior firm performance.