Essay: The Concept of Economies of Scale

Sample Essay

The two companies would benefit in a variety of ways including cost cutting as both British Airways and Qantas could utilise and take advantage of each company’s resources. The most important aspect of merger the companies can benefit from is the cost efficiency which will be achieved through economies of scale. The concept of economies of scale is based on the theory that the larger the size of an organisation the lower will be the average cost per unit. Each of the two companies would have an advantage of geographical presence after the completion of merger.

When the merger is completed there would be lower competition in the market and the newly formed entity would be quite large and it would be difficult for other organisations and airlines to compete. The two companies would bring the technical expertise, experience and amply trained human resource and key employees to the new organisation. The grouping of expert human resources from both companies would enhance the decision making and management process. British Airways and Qantas both are competitors before the merger and have a different set of customers and percentage of the market share. Through merging both companies can not only take advantage of each other’s customers but the market share of the newly formed organisation would also be quite high. The company created as a result of the merger would not only have greater value but would benefit the two companies as well.

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