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 ScaleExternal Economies of Scale
Economies of scale which unique within the companyEconomies 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
Internal Economies of Scale vs External Economies of Scale

Comparison of Internal Economies of Scale and External Economies of Scale

  1. Internal economies of scale are unique within the company whereas external economies of scale apply to the industry as a whole.
  2. 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.
  3. 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

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