Determinants of Economies of Scope in Retail

This paper studies the determinants of economies of scope and quantifies their impact on the extensive and intensive product margins in retail. We use a framework based on a multiproduct technology to model stores’ incentives to expand product variety. Using novel Swedish data on product categories and stores, we find that high-productivity stores offer more product categories and sell more products of all categories. Stores with high-demand shocks specialize in fewer product categories and sell more products of top-selling categories. Policy simulations of regional programs that target the determinants of economies of scope show that investment subsidies and mentoring support for low-productivity stores increase the number of product categories and sales per product category, especially benefiting stores in rural markets.