MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 84)

Economies of scale are a type of entry barrier that new firms may face when they attempt to break into an industry. Incumbent firms that have scaled their businesses for larger outputs are able to drive down their cost per unit by spreading fixed costs, employing technology more efficiently, having a more specialized division of labor and being able to demand better terms from suppliers. These factors act as barriers for new entrants into industries with large scale established incumbents.