economies of scope(redirected from Economy of scope)
Economies of scope
Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
economies of scopethe 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.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
economies of scopethe 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.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005