Do the Largest Firms Grow the Fastest? The Case of U.S. Dairies



Further, the U.S. dairy industry has become more geographically concentrated,
particularly in the West. The abundance of land, favorable climate, and availability of
inputs has allowed dry lot dairy farms to capture large scale economies and realize larger
farm sizes (Miller and Blayney, 2006; Sumner and Wolf, 2002).

The rapid changes in this industry suggest several important empirical research
questions and testable hypotheses with regard to firm and industry growth that could have
profound implications for public and private decision making. For example, profit-
maximizing, price-taking firms are expected to grow if they can exploit scale and scope
economies. Scale economies exist as long as the firm experiences decreasing average
costs as output increases, while scope economies exist if the average total cost of
production decreases as a result of increasing the number of goods produced. The
existence of both economies in a wide variety of food production and manufacturing
industries has been reported by many empirical studies, and some have even found that
such economies apply to the largest firms (e.g., Mulik, Taylor, and Woo, 2005; Morrison-
Paul, Nehring, and Banker, 2004; Helmers and Atwood, 2003; Mafoua, 2002; Morrison-
Paul, 2001; Ollinger, McDonald, and Madison, 2000; Ben-Belhassen and Womack,
2000;). Scale and scope economies have been credited as important driving factors
behind the structural changes occurring in the U.S. agricultural sector. Nevertheless, the
evidence remains ambiguous as some have found constant or declining returns to
scale/scope for the larger firms (Mosheim and Lovell, 2006; Just, Mitra, and Netanyahu,
2005; Chavas and Aliber, 1993; Matulich, 1978).

Resolving this dilemma is of great import. If the largest food production firms do
experience economies of scale and scope and if those economies do not dissipate, the



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