Benefits of a growing business

As a business grows it gains two major advantages over its smaller rivals. Large firms:

  1. have more influence over market price and are big enough to be price setters
  2. often enjoy economies of scale
Economies of scale means a business has lower purchase costs which results in lower sale costs.

Economies of scale means that a business has lower unit costs because of its large size. They can buy raw materials cheaply in bulk and also spread the high cost of marketing campaigns and overheads across larger sales.

For example, if a large firm can produce a given type of sunglasses for £20 while it costs its smaller rival an average of £30, then the larger firm has a £10 per unit cost advantage. Larger firms can:

Economies of scale are a major source of competitive advantage for large firms.