Economies of Scope and Scale

Economies of Scope and Scale.

What are they? What is the key difference between an economy of scale and an economy of scope?

One source of growth is external growth from a merger and/or acquisition. Often merger/acquisition are justified on the basis of the expected benefits from ‘synergies’ created by the merger/acquisition. Economists know these as economies of scale and economies of scope.

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Select one of the below mergers and acquisitions and determine if the synergies come from economies of scope or economies of scale. Make sure you provide a clear explanation of the difference between economies of scope and economies of scale. The link above is to some help provided by Dr Cruceru.

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a) Sirius XM acquires Pandora;
b) the yet to be concluded merger of Sprint, T-Mobile and Metro PCS;
c) the merger of Strayer University and Capella; or
d) the Renault/Nissan/Mitsubishi Alliance.

Sample Solution

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Economies of Scope and Scale

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