moments and the range dropped markedly. So rather than becoming larger, more
dispersed, and more asymmetric like the incumbent cohorts, the distribution of firms in
the new entrants cohort became more compact and symmetric. Although they were as
specialized when they entered the industry as the largest incumbent cohort had been, they
increased their level of diversification almost as much in five years as the medium-sized
cohorts did in 10 years.
Conclusions and Implications for Decision Making
The existing empirical literature on firm growth in competitive markets provides no
conclusive evidence about the relationship between firm size and its growth. In this
paper we examine scale and scope economies in the dairy industry. For this purpose we
use a nonparametric approach. We conclude inferentially that both scale and scope
economies persist in the largest cohort of dairy farms but scope economies appear to be
greater in the smaller cohorts.
Results show large dairy farms still experience significant scale economies that do not
dissipate. They grow at a faster rate than medium-sized farms. This suggests that size
distribution is not approaching a stable steady state equilibrium. Results also show that
new entrants are generally large. This indicates that the minimum farm size below which
dairy production is no longer profitable without a niche market is getting larger.
Dairy farms of all sizes diversify their output over time. A growing number of dairy
producers are making the strategic decision of becoming less dependent on production of
milk and dairy products in favor of other agricultural outputs. The rate of diversification
is highest among small producers, and new entrants diversify more rapidly than
incumbents.
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