Technical Definitions: What is Economies of Scale? Economies of Scale Definition.

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Economies of Scale Definition

Economies of scale refers to the notion of increasing efficiencies of the production of goods as the number of goods being produced increases. Typically the average costs of producing a good will diminish as each additional good is produced, since the fixed costs are shared over an increasing number of goods.

Due to economies of scale, larger companies have greater access to markets in terms of selecting media to access those markets, and can operate with larger geographic reach.

For traditional companies, size does have its limits, where additional size actually increases costs to companies (impacts communications costs etc., diminishing returns). Thus many industries tend to operate more effectively in an oligopolistic fashion, with few large firms, rather than one monopolist. (This should occur even if the government allowed monopolists and monopolists behaved legally). Digital companies tend not to suffer from this size limitation.

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