Economies of Scale

• are derived from incremental efficiency improvements through experience as a firm grows larger

  economies of scale
• the cost of producing each unit declines as the quantity of a product produced during a given period increases

  economies of scale
• A new entrant is unlikely to quickly generate the level of demand for its product that in turn would allow it to develop economies of scale.
• Economies of scale can be developed in most business functions, such as marketing, manufacturing, research and development, and purchasing.
• Firms sometimes form strategic alliances or joint ventures to gain scale economies.
• Becoming more flexible in terms of being able to meet shifts in customer demand is another benefit for an existing company in an industry and a possible entry barrier for the firms considering entering the industry.
• Some competitive conditions reduce the ability of economies of scale to create an entry barrier such as the use of scale free resources.
• Companies manufacturing customized products can respond quickly to customers’ needs in lieu of developing scale economies.