Economies of Scope
Cost savings that arise when a firm produces multiple products jointly more cheaply than separately.
What is Economies of Scope?
Economies of scope exist when the total cost of producing two or more products jointly is lower than the combined cost of producing each product independently. They arise because multiple products share inputs, production processes, distribution channels, or organizational capabilities, making joint production more efficient. Economies of scope are a key driver behind corporate diversification strategies and product line expansion. They are distinct from economies of scale, which are cost reductions from producing more of a single product — economies of scope are about breadth, while economies of scale are about volume. A firm exploiting economies of scope can often outcompete specialists by spreading overhead across multiple product lines.
Example
Amazon achieves strong economies of scope across e-commerce, AWS cloud computing, advertising, and Prime Video. Infrastructure such as data centers, logistics networks, and customer relationships serve all business lines simultaneously. Building these capabilities jointly costs far less than developing separate infrastructure for each division — a structural cost advantage that has enabled Amazon to cross-subsidize low-margin retail with high-margin AWS profits.