Firms seek growth. One source of growth is external growth from a merger or acquisition. Often mergers or acquisitions are justified on the basis of the expected benefits from “synergies” created by the merger of acquisition. Economists know these “synergies” as economies of scale and economies of scope. There is almost always in a merger or acquisition one of these forces which is the predominate force.
The focus of this discussion will be on understanding the difference between economies of scale and economies of scope. What are the key differences? Use these concepts to determine whether gains from economies of scale or the gains from economies of scope was the principle reason behind the merger or acquisition.
Select one of the mergers or acquisitions below:
- Sirius XM acquired Pandora, was this about scope or scale economies?
- The merger of Sprint, T-Mobile and Metro PCS, was this about scope or scale economies?
- The merger of Strayer University and Capella University to form SEI, was this about scope or scale economies?