Testing for vertical economies of scope: An example from US pig production

A firm operating in two or more stages of production is said to have vertical economies of scope if the costs of jointly producing two or more vertically adjacent products is less than the costs of producing the products independently. As important as those economies are in theory, they have so far received no empirical treatment compared to scope economies in multi-output production, especially in agriculture. This paper tests for vertical economies of scope in US pig production, using 1990 firm-level cost data. Based on the Wilcoxon matched-pairs signed-rank test, no evidence of vertical economies was found, meaning that it was no more or less costly to produce pork in a farrow-to-finish setting than with separate feeder-pig production and finishing.