Sources of economies of scale
Generally, the economies of scale The 10 largest U.S. firms at their level are realized due to various possibilities. At the level of the plant, the economies of scale reflect the technological aspects of production. For example, if there are fixed setup costs to produce a specific model on an assembly line, the per unit setup cost will lower the greater the number of units produced. Another possibility is based on the law of large numbers; when unit sales double firms do not have to double their inventories to achieve a given probability of having supplies available to consumers. Firms can also achieve gains from specialization, from their labor and capital inputs at higher output levels. In addition, there may be advantages when a firm can purchase inputs at lower cost with volume discounts (Cooper, Argyris & Channon, 1998).
This is the most salient example of a firm that gains from economies of scale. As a major player in the field of retailing, its size gives it enormous efficiencies that it uses in keeping the costs low. For example, the size allows it to do purchasing more efficiently because it has several large stores worldwide. This gives Wal-Mart tremendous bargaining power with the suppliers. Also, the company has a vast amount of information about consumer likes and dislikes which enables it to spread is best practices across its stores (Hicks, 2007).
This company’s production unit gets economies of scale from IBM operating systems (MS DOS) whereby the writing of programs in the IBM standards. Also, IBM clones have benefits from automatic compatibility with all IBM components and software which leads to increased competition for the company. In some sense, IBM has a command of the international computer market on deliberate policies adopted to squeeze the maximum possible economic advantage, in form of lower costs, from its ability to impose technical standards across an array of products (Flamm, 1988).
Microsoft obtains its marketing economies, financial economies, managerial economies and technical economies due to its monopolistic nature. For instance, Microsoft covers 90 percent of the world’s PC operating systems market. Due to this, it tends to earn high profit by choosing prices higher than would be the case if the industry was competitive (Anderton).