Internal Economies of Scale vs External Economies of Scale
Difference Between Internal Economies of Scale and External Economies of Scale
The Below Table Illustrates the Difference Between Internal Economies of Scale and External Economies of Scale
| Internal Economies of Scale | External Economies of Scale |
|---|---|
| Economies of scale which unique within the company | Economies of scales for the industry as a whole |
| Purely based on the outcomes and the unique capabilities of the company | Purely based on the external factors which common for the entire industry |
| Unit cost advantages for the business when expanding their scale of production | Unit cost advantages for the business from the advancement of their industry |
| Internal economies of scale occur inside the company (company-specific) | External economies of scale occur outside of the company but within an industry/location area |
| Typically occur in large companies | Usually, it is commonly applicable across all size of companies in the industry |
| Example 01: A company has a patent for their unique production technology, which leads to lower the average cost of production compared with similar competitors | Example 01: The average cost of raw material in the country gets lower, the cost of production will reduce on all similar companies that require this supply |
| Example 02: A production company had forward integrated with the distribution of their products by acquiring the largest distributor. This results in a decrease in sale price compared to their competitors | Example 02: IT services delivery industry grows larger with the cultural changes and technology advancements, then the demand for the individual company also grows |
| Example 03: Apparel manufacturing company had conducted successful research about using robotics for their production which none of the other competitors looked into. They have implemented it which results in lowering the unit cost of production | Example 03: Assume if Alaska state in The United States reduces its taxes to attract companies to the area that will provide the most jobs. Then the advantage applicable for all companies located in Alaska |
Comparison of Internal Economies of Scale and External Economies of Scale
- Internal economies of scale are unique within the company whereas external economies of scale apply to the industry as a whole.
- Internal economies of scale are purely based on the outcomes and the unique capabilities of the company whereas external economies of scale are purely based on the external factors which common for the entire industry.
- Internal economies of scale are typically the unit cost advantages for the company when expanding their scale of production whereas external economies of scale are typically the unit cost advantages for the company from the advancement of their industry.
Overview about Internal Economies of Scale
Internal economies of scale are unique within the company. It is purely based on the outcomes and the unique capabilities of the company. Those are typically the unit cost advantages for the company when expanding its scale of production.
Overview about External Economies of Scale
External economies of scale are apply to the industry as a whole. It is purely based on the external factors which common for the entire industry. Those are typically the unit cost advantages for the company from the advancement of their industry.
Recommended Articles:
1. Meaning of Economies of Scale?
2. Diagram illustrates Economies of Scale
3. Types of Internal Economies of Scale with Examples
4. Advantages and Disadvantages of Economies of Scale
5. Diseconomies of Scale with Examples
