Economies of scale

Economies of scale

1) Economic theory which appears to dictate that ‘big’ is economically better (ie bulk buying gives lower cost per unit; large firms can operate more efficiently than small ones; two lorries can be operated more economically than just one, etc).Where a firm has a high proportion of direct costs any increase in output that can be sold so as to achieve a satisfactory return will have the effect of lowering unit costs.

This advantage appears to be very limited in road freight transport and the coaching trade, but this does not account for the growth of larger bus firms. There are also diseconomies of scale (eg resulting from over-bureaucratic management) which will offset growth beyond a certain point.

Source: David Lowe. The Dictionary of Transport and Logistics. Kogan Page, 2002. – P.79 (288 p.)