economies of scope

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Economies of scope

Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.

economies of scope

the cost savings which arise by carrying out a number of different activities within the same firm through sharing common inputs or jointly promoting or distributing products. For example, a building society could use its existing branches and staff not only to sell mortgages but also to offer customers other financial services such as insurance, pensions etc. Likewise, Nestlé has used the strategy of UMBRELLA BRANDING to extend its range of instant coffee products all under the ‘Nescafé’ BRAND NAME thereby reducing promotional costs. See DIVERSIFICATION.

economies of scope

the LONG-RUN reduction in AVERAGE (or unit) COSTS that occurs as the scope of the firm's activities increases. A firm can achieve economies of scope by sharing common inputs over a range of its activities or by jointly promoting or distributing its products. For example, a building society could use its existing branches and staff not only to sell mortgages but also to offer customers other financial services such as banking and insurance.

Economies of scope are often an important motive for firms undertaking ‘concentric’ DIVERSIFICATION.

References in periodicals archive ?
Under the LTE network, the Ubitus GameCloud can work smoothly with minimum latency by reducing server multimedia and device processing time and increasing the concurrency rate on each serve, and therefore, reduce the operational cost significantly to achieve economy of scope.
IDC Manufacturing Insights research indicates that the impact of globalization, growing operational complexity and diverse markets and consumers demand that overall manufacturing strategy should shift from economy of scale to economy of scope, focusing on global flexible manufacturing capabilities.
Risks-Benefits Risk Benefit Vulnerability Independence Time constraints Time flexibility No economy of scale No pressure to take shortcuts No economy of scope No pressure to refer Time away from family Time with family Lost income Secure job Malpractice insurance Reduced exposure Business risk Business control
However, in most cases economy of scope also implies that the firm must make a choice.
Smaller programs have this trouble too, but they also have the implicit firewall that comes with economy of scope.