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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;
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.
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 ...
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 ...
Krugman (1980) demonstrates that a country with larger consumers of an industry's goods will run a trade surplus in that industry characterized by economies of scale. Helpman and Krugman (1985) [6] show that the larger country's share of firms in that increasing returns industry exceed its share of consumers. Thus, a further development in the ...
If only diseconomies of scale existed, then the long-run average cost-minimizing firm size would be one worker, producing the minimal possible level of output. However, economies of scale also apply, which state that large firms can have lower per-unit costs due to buying at bulk discounts (components, insurance, real estate, advertising, etc.) and can also limit competition by buying out ...
Another contribution that Marshall made was differentiating concepts of internal and external economies of scale. That is that when costs of input factors of production go down, it is a positive externality for all the firms in the market place, outside the control of any of the firms. [17]
Economies of scale external to a firm result from spatial proximity and are called agglomeration economies of scale. Agglomeration economies can be seen as the external condition for companies and the internal condition for the region. Increasing returns to scale, according to Beckmann, is integral to understanding why urban centers form.