Economies of scope is an economic theory stating that average total cost (ATC) of production decrease as a result of increasing the number of different goods produced.
and thus achieve economies of scope since with the same facility, each new product attracts new dollars a customer would have spent elsewhere.
[3] The term and the development of the concept are attributed to economists John C. Panzar and Robert D. Willig (1977, 1981).
[4][5] Their 1981 article notes that they had coined the term several years previously, and felt that its logic was "intuitively appealing".
[6] Economies of scope make product diversification efficient, as part of the Ansoff Matrix, if they are based on the common and recurrent use of proprietary know-how or on an indivisible physical asset.
[7] For example, as the number of products promoted is increased, more people can be reached per unit of money spent.
As Venkatesh Rao of Ribbonfarm explains it, "You may never get to a point where you can claim you have right-sized and right-shaped the business, but you have to keep trying.
In fact, managing the ongoing scope-learning process is the essential activity in business strategy.
The substantial indivisible invest in R&D may also implies that average fixed costs will fall rapidly due to the output and sales increase.
[12][13] Strategic fit, also known as complementarity that yields economies of scope, is the degree to which, or what kind of activities of different sections of an entrepreneur corporates with each other that complement themselves to achieve competitive advantage.
[2] Economies of scope served as the impetus behind the formation of large international conglomerates in the 1970s and 1980s, such as BTR and Hanson in the UK and ITT in the United States.
These companies sought to apply their financial skills across a more diverse range of industries through economies of scope.
[1] 3D printing is another area which can generate economies of scope,[16] as it is an example of the same equipment producing "multiple products more cheaply in combination than separately".