Question

Select one of the mergers and acquisitions below:

Sirius XM acquires Pandora.

The yet to be concluded merger of Sprint, T-Mobile, and Metro PCS.

The merger of Strayer University and Capella University.

For your chosen scenario, address the following in your discussion post: How are the concepts of economies of scope and economies of scale different?

How do they differ within the context of your chosen scenario?

What are the synergies that come from the economies of scope?

What are the synergies that come from the economies of scale?

Answer 1

"Economies of scale" refers to cost savings due to increased volume of production. On the other hand, "Economies of scope" means cost savings due to increased variety of output.

Scenrios given:  All the given scenarios are broadly horizontal mergers resulting mainly in economies of scale viz., university merging with university or merger of telecom serice providers. However Sirius XM-Pandora merger also attracts greater economies of scope in addition to economies of scale.

Chosen scenario :- Sirius XM acquires Pandora

Sirius XM was a leader in subsription radio. On the other hand, Pandora was the largest US audio streaming platform. Their amalgamation not only clubs the respective online users (scale) but also now offer variety by clubbing different bouquet of services (scope). The merger is expected to drive subsantial economies on these accounts by way of below mentioned synergies ( 1 + 1 > 2 !).

Synergies that come from the economies of scope:

• More flexibility in product mix and product design

• Reduced marketing costs

• Faster response to changes in market demand

• Greater control on processes.

• Distributed processing capability

• Lower overall risk

Synergies that come from the economies of scale:

• Increased efficiency in use of resources
• Greater bargaining power over inputs
• Division of labour
• Faster recovery of overheads (fixed costs)