Economies of Scale
Cost advantages a firm gains as it increases production, reducing average cost per unit at larger output volumes.
What is Economies of Scale?
Economies of scale occur when a firm's average cost per unit falls as its production volume increases. Fixed costs — such as factories, software platforms, or management overhead — are spread across more units, and operational efficiencies emerge at scale. They create competitive barriers to entry and are a key driver of industry consolidation. The opposite, diseconomies of scale, occurs when firms grow so large that coordination costs exceed efficiency gains.
Example
Amazon's fulfillment network demonstrates powerful economies of scale. Building a mega-warehouse costs billions, but the cost per package shipped falls dramatically as order volume grows — giving Amazon a structural cost advantage over smaller rivals who cannot match its throughput.
Source: CFA Institute — Economics