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Through the external economies of scale, the entry of new firms benefits all existing competitors as it creates greater competition and also reduces the average cost for all firms as opposed to internal economies of scale which only allows benefits to the individual firm. [45] Advantages that arise from external economies of scale include;
For example, if there are increasing returns to scale in some range of output levels, but the firm is so big in one or more input markets that increasing its purchases of an input drives up the input's per-unit cost, then the firm could have diseconomies of scale in that range of output levels.
A company may do this via internal expansion or through mergers and acquisitions. [1] [2] [3] The process can lead to monopoly if a company captures the vast majority of the market for that product or service. [3] Benefits of horizontal integration include: increasing economies of scale, expanding an existing market, and improving product ...
With increasing returns to scale, countries that are identical still have an incentive to trade with each other. Industries in specific countries concentrate on specific niche products, gaining economies of scale in those niches. Countries then trade these niche products to each other – each specializing in a particular industry or niche product.
The European Economic Community was the first large-scale example of a common market. [ a ] A single market allows for people, goods, services and capital to move around a union as freely as they do within a single country – instead of being obstructed by national borders and barriers as they were in the past.
This makes scale economies an antitrust barrier to entry, but they can also be ancillary. [1] The per-unit cost will be lower in scale economies due to the spread of fixed costs to larger volumes, technology efficiencies and better supplier terms, therefore new entrants join the industry either on a large scale or at a cost disadvantage. [8]
Krugman argues that economies specialise to take advantage of increasing returns, not following differences in regional endowments (as contended by neoclassical theory). In particular, trade allows countries to specialize in a limited variety of production and thus reap the advantages of increasing returns (i.e., economies of scale ), but ...
Gains from trade are commonly described as resulting from: specialization in production from division of labor, economies of scale, scope, and agglomeration [5] and relative availability of factor resources in types of output by farms, businesses, location [6] and economies