Diversification and the Achievement of Scope Economies

The utility industry is undergoing major regulatory changes, freeing up a competition between alternative business models. Diversification marks one of the main themes in this struggle for success. The question of how companies can add value by engaging in multiple businesses inevitably relates to the concept of economies of scope. This chapter introduces the concept as a rationale for diversification, highlights its practical limitations, and discusses whether it explains the exhibited diversification trends within the utility industry. The chapter concludes by supporting the relevance of the concept for explaining diversification in general and the trends within the utility industry in particular.