Internal economies of scale

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Internal economies of scale occur when the unit costs depend on the size of the individual company and not necessarily on the industry . For example, with increasing production, technical and organizational efficiency increases and higher personal qualifications can be achieved.

Further definition

In addition to the external economies of scale , the internal economies of scale refer to the increased production output within a company. Internal economies of scale show that average costs depend solely on the size of the company, since individual companies can achieve economies of scale through internal processes and measures. Internal economies of scale are the advantages of mass production that can be used internally .

Classification

Internal economies of scale give large companies a cost advantage over small companies and lead to the development of a market structure characterized by incomplete competition . However, so that the cost advantages can be fully exploited, both internal and external economies of scale must be exploited, whereby internal economies of scale can also be achieved through hierarchy and market relationships. Not only the internal, but also the external economies of scale are an important cause of foreign trade .

Mark

Since internal economies of scale are often associated with market imperfections, they destroy all competition. For this reason, two models are examined more closely to analyze trade: the model of monopoly competition and the dumping model .

A pure monopoly position rarely occurs in practice, since companies with high profits encourage competitors to enter the market . In industries with internal economies of scale, the normal market structure is that of the oligopoly . There are several companies in the market, all of which are large enough to influence prices, but none of which has an undisputed monopoly. This is the case, for example, when an industry consists of several companies that manufacture similar - but differentiated - products and behave like individual monopolists. In the model of monopoly competition, mutually differentiated products are exchanged in an industry ( intra- industrial trade ). Dumping occurs as soon as a monopoly company charges a lower price for exports of its product than domestically in a market with incomplete competition .

The larger the individual company is, the more internal economies of scale gain in importance, as these enable the company to lower average costs by expanding production. Since the average costs decrease with the size of a company, there is a tendency towards cutthroat competition . This means that the small and / or relatively slow growing companies are inferior to the large and / or relatively fast growing companies in the long term, as they cannot survive in price competition.

implementation

Internal economies of scale can be achieved, for example, when machines are better utilized or when companies receive more favorable loan terms due to their size. With the realization of internal economies of scale through economies of scale and experience curve effects, the vertical range of manufacture increases and falls accordingly with the increased use of external economies of scale.

In order to open up internal economies of scale, but at the same time also to reach as many customers as possible, most companies design their products as a multi-variant product line. The individual products are manufactured on the basis of a basic product or a product platform and / or basic components in different variants or derivatives , since the end customers who purchase and use the products are closely connected to them. Since the products are used by end customers and users for a certain function over a longer period of time, they usually represent capital goods . Through international cooperation, companies can consciously change their cost positions. In addition to the economies of scale, the learning effects are also responsible.

Learning effects

The more experience a company has in creating certain services, the lower the average costs. Savings are possible through professional employees and successively improved processes. This process is also known as the learning or practice advantage (economies of learning).

Economies of scale are economies of scale due to increasing capacity utilization or increasing capacity sizes, while learning effects are savings that result over time through improvements or increases in the speed of carrying out activities.

Degression of costs as an expression of a scale economy accompanies the production process when it comes to correspondingly large amounts of fixed capital. As a consequence, the acquisition of knowledge through learning is reflected in new production technologies, and it makes sense to separate the learning process from the internal economies of scale. Learning processes and internal economies of scale have one common result: an increase in productivity and, in the course of the production process, a reduction in unit costs .

Learning by doing

The focus of European companies is largely on forms of “learning by doing and learning by using” - essentially on internal economies of scale and the learning effects from the cooperation with users and customers. That means nothing else than: The more often work is carried out and repeated, the more efficient the result will be. The direct labor input per output unit decreases. In the special case of learning by doing, increasing production experience results in improvements in technical knowledge. Learning by doing cannot be reduced to learning by the job in the short term, but can only be understood in a long-term perspective of an endogenous growth engine. Assuming that learning curve effects become clear in decreasing unit costs over time, a learning function can be expressed by a cost function .

example

From the time of the introduction of the production line for the Ford Model T in 1909 until its replacement in 1927, an extraordinary cost reduction was achieved in the course of cumulative production. The reasons for this lay in management experience and direct production experience on the assembly line . This knowledge made corresponding price reductions possible as a result of the cost reduction. The Model T thus became the first mass car in the history of industrial production.

literature

  • Gustav Dieckheuer: International economic relations . 5th edition. Oldenbourg, Munich 2001, ISBN 3-486-25806-0
  • Detlev Ehring, Torsten Kuhn: Human capital, learning curves, economies of scale. Behavioral foundations and empirical illustrations of economic dynamics . Univ. Bremen 1998, ISBN 3-89518-499-3
  • Richard Frensch: Product differentiation and division of labor. Increasing economies of scale, external effects and monopoly competition in foreign trade . Physica-Verlag, Heidelberg 1992, ISBN 3-7908-0663-3
  • Paul R. Krugmann, Maurice Obstfeld: International Economy . 7th, updated edition. Pearson Studies, Munich 2006, ISBN 978-3-8273-7199-7
  • Albrecht Söllner: Introduction to International Management. An institutional economic perspective . Gabler, Wiesbaden 2008, ISBN 978-3-8349-0404-1

Individual evidence

  1. ^ A b c Paul R. Krugmann, Maurice Obstfeld: Internationale Wirtschaft . 7th, updated edition, Munich 2006, ISBN 978-3-8273-7199-7 , p. 162 ff.
  2. ↑ a b Gustav Dieck Heuer: International Economic Relations . 5th edition, Oldenbourg, 2001, ISBN 3-486-25806-0 , pp. 118 f.
  3. ^ Theoretical foundations of international economic integration . ( Memento of the original from April 27, 2005 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF) p. 15, accessed April 16, 2009.  @1@ 2Template: Webachiv / IABot / www.rhombos.de
  4. ↑ Alexander Ebner: factor equipment and foreign trade . ( Memento of the original from June 13, 2007 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF) p. 11, accessed April 19, 2009. @1@ 2Template: Webachiv / IABot / www2.uni-erfurt.de
  5. ↑ Hartmut Berg, Erhard Kantzenbach, Otto G. Mayer: European Community: Inventory and Perspectives . Berlin 1993, ISBN 3-428-07860-8 , p. 110.
  6. ^ Bjoern Hegewald: Virtual companies. A cross-functional analysis - shown using the call center as an example . Marburg 2003, ISBN 3-8288-8513-6 , p. 20.
  7. ^ Richard Frensch: Product differentiation and division of labor. Increasing economies of scale, external effects and monopoly competition in foreign trade . Heidelberg 1992, ISBN 3-7908-0663-3 , p. 9.
  8. ↑ Burkhard Schwenker, Stefan Bötzel: Overcoming the limits of growth. Use economies of scale, avoid size disadvantages . (PDF; 146 kB) p. 8, accessed April 16, 2009.
  9. ↑ Hans-Christian Krcal: The role of the “vertical range of manufacture” as a variable in the counter-current planning of strategies . ( Memento of the original of May 21, 2009 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF) p. 15, accessed April 25, 2009. @1@ 2Template: Webachiv / IABot / www.awi.uni-heidelberg.de
  10. ↑ Andreas Kubosch: Product development as negotiation - negotiable organization of development projects . Aachen 2008, ISBN 978-3-940565-14-3 , p. 32 f.
  11. ^ Albrecht Söllner: Introduction to International Management. An institutional economic perspective . Wiesbaden 2008, ISBN 978-3-8349-0404-1 , p. 27.
  12. ^ Antje Wittig: Management of company networks . Wiesbaden 2005, ISBN 978-3-8244-8311-2 , p. 109.
  13. ↑ Detlev Ehring, Torsten Kuhn: Human capital, learning curves, economies of scale. Behavioral foundations and empirical illustrations of economic dynamics . Bremen 1998, ISBN 3-89518-499-3 , p. 3 f.
  14. ↑ Christoph Dörrenbächer et al .: Globalization of production structures. A labor and industrial policy analysis of global development associations . Science Center Berlin for Social Research (WZB), Berlin 1997, p. 53.
  15. ↑ Detlev Ehring, Torsten Kuhn: Human capital, learning curves, economies of scale. Behavioral foundations and empirical illustrations of economic dynamics . Bremen 1998, ISBN 3-89518-499-3 , p. 6 ff.
  16. ↑ Detlev Ehring, Torsten Kuhn: Human capital, learning curves, economies of scale. Behavioral foundations and empirical illustrations of economic dynamics . Bremen 1998, ISBN 3-89518-499-3 , p. 7.