LOGO Chapter2 The Horizontal Boundaries of the Firms: Economics of Scale and Scope 趙琪 國立雲林科技大學

Formal Definitions of Economies of Scale and Scope  Definition of Economics of Scale. AC MSE Q $/Unit

 Definition of economics of scope.  TC(Q x, Q y ) < TC(Q x,0)+TC(0,Q y )

Where Do Scale Economics Come From?  Indivisibilities and the Spreading of Fixed Costs.  Case 1 Hub- and- Spoke Networks and Economies of Scope in the Airline Industry.

“The Division of labor is limited by the extent of the market” Case 2 The Division of Labor in Medical Market

MMerged Inventories TThe Club-Square Rule and the Physical Properties of Production

Special Sources of Economies of Scale and Scope  Economies of Scale and Scope in Purchasing  It may be less costly for a seller to sell to a single buyer.  A bulk purchaser may be more price sensitive.  Sellers may fear a costly disruption to operations, or in the extreme case, bankruptcy, if they fail to do business with a large purchase.

 Economies of scale and scope in Advertising  Costs of Sending Messages per Potential Consumer  Advertising Reach and Umbrella Branding  Economies of scale in Research and Development

Sources of diseconomies of scale  Labor Costs and Firm Size.  Incentive and Bureaucracy Effects  Spreading Specialized Resources too Thin.  “Conflicting Out”

The Learning Curve TThe Concept of the Learning Curve. EExpanding Output to Obtain a Cost Advantage. LLearning and Organization

Case 3 The Boston Consulting Group Growth/Share Paradigm.

The Learning Curve versus Economics of Scale  Simple Capital-Intensive Production Process  Complex Labor-Intensive Production Process

Scale and Scope Economies, Firm Size, and Profitability  Scale, Scope, and Firm Size  The Relationship Between Market Share and Profitability