Two essential strategies for use by firms are economies of scale and economies of scope. They entail the element of cost-effectiveness, which depicts them as converging factors, yet they are diverging as their frameworks exhibit a difference and the perception of economists as represented in the recent merger involving Dell Technologies.
Economies of scale and economies of scope are converging yet diverging as they seek a similar goal of improving standards of establishments to capture cost effectiveness while they differ in their framework. Economies of scale mean “the increase in the efficiency of production due to the increase in size, output or activity level” (Molinos-Senante & Maziotis, 2018). They are the result of the indirect relationship that occurs between the quantity of production and its per unit cost measure as the fixed cost is unchanging regardless of the production levels of establishments.
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Economies of scope on the other hand refer to “the reduction in the average cost per unit, by increasing the variety of products” (Molinos-Senante & Maziotis, 2018). The technique captures a decrease of the expenses of producing products for the engaging entities which would occur as a costly plot if each company created a product individually. The two display a converging aspect of cost-effectiveness where the main difference is that the former leans on the volume aspect as it seeks the taking advantage of improved levels of production of a good while the latter is due to variety. A source of external growth is that of a merger or acquisition that are synergies doctored to achieve specific benefits. A recent merger is the case of Dell Technologies with EMC in the computer industry that was predominantly about gaining economies of scope as the company sought cost effectiveness through a focus on variety (DELL Technologies, 2018).
Economies of scale and economies of scope are converging as they seek cost effectiveness. They differ in their framework where the former focuses on volume while the latter on variety. The strategic union of establishments in acquisitions or mergers seek the benefits mentioned above, which explains the merger of Dell Technologies that exhibits elements of economies of scope.
References
Molinos-Senante, M., & Maziotis, A. (2018). Flexible versus common technology to estimate economies of scale and scope in the water and sewerage industry: An application to england and wales. Environmental Science and Pollution Research International, 25(14), 14158-14170.
DELL Technologies. (2018, Nov 15). Retrieved from https://investors.delltechnologies.com/node/8746/html
