Discussion 2 - Firms seek growth

Discussion 2

Context:

Firms seek growth. One source of growth is external growth from a merger or acquisition.  Often mergers or acquisitions are justified on the basis of the expected benefits from "synergies" created by the merger of acquisition. Economists know these as economies of scale or economies of scope.

The focus of this discussion will be on understanding the difference between economies of scale and economies of scope.  What are the key differences?  Use these concepts to determine whether gains in economies of scale or gains in economies of scope were the principle reason behind the merger or acquisition.

The Assignment:

Select one of the mergers or acquisitions below:

• Sirius XM acquired Pandora, was this about scope or scale economies?
• The merger of Sprint, T-Mobile and Metro PCS, was this about scope or scale economies.
• The merger of Strayer University and Capella University to form SEI, was this about scope or scale economies?

Make sure you explain how economies of scale and scope differ.  Describe how growth in the case you select is created from either an economy of scope or scale