Non-Linear Economies of Scale in Food Production: The Case of Norwegian Bakeries

Abstract

The bakery industry has a rich history. Its modern forms involve both manufacturing products and delivering them to customers. Both small bakers and large producers sell their products to the supermarket. The largest bakeries export a wide variety of baked foods. The sector is a large employer and it has been thoroughly studied internationally. However, only a small number of studies have analysed the baked goods sector, often due to the lack of categorization of bakeries in the data. In this article, we use public statistics on Norwegian bakeries to study their economies of scale. The profitability of large bakeries persistently exceeds the average rate. New bakeries are equally likely to succeed or fail in the long run. Many new bakeries enter the market as a result of tough competition and a long period of high sector probability but it is difficult for them to survive. Those that must leave the market are mostly new entrants. Despite their difficulties, small and medium-sized bakeries are more profitable than new start-up businesses. We investigate the non-linear relationship between size and profitability as well as between and within bakeries.