Potential gains from specialization and diversification further to the reorganization of activities

• Provide new insights into the diversification and specialization phenomena.
• Measure gains due to division and/or merger processes using non-convex technologies.
• Reveal the source of these gains (mix and/or size effects).
• From a database of farms, we demonstrate that the division gains outweigh the merger gains.
• Given the scope of mix changes, we conclude to more specialization gains than diversification gains.

In economic activities, two main forces guide firm and market structures: specialization and diversification. This paper provides new insights on this topic. We propose measuring gains due to simulated division and/or merger processes of firms. Potential gains come from a reorganization of activities through specialization/diversification and/or size effects. From a database of French farms, our findings demonstrate that even if both processes are beneficial for farming systems, the division gains outweigh the gains obtained by a merger. Moreover, mix changes are more important following a division than following a merger, implying more specialization gains than diversification gains.