How can company mergers lower average costs?

[d6197]

How do they take advantage of economies of scale. I don't understand how 2 companies merging together can cut the average production cost per unit. I am guessing less staff will be one, but can't think of anymore. What do you think? ------

[icprofit6000]

You can get better deals if you buy in volume. Many such deals scale with increase volume. You may get a better discount. You have more clout and many be able to get a better discount even if the company does not offer on.Also you might be able to better optimize you transportation grid. say moving a customer of A who is near company B to company B delivery center could mean that you have less transportation cost. ------

[val]

usually they do downsizing. closed offices, cut staffs, cut everything that is previously two into one (if previously the two companies have two factories-same outputs/products, they will close one, retain the most profitable, etc). however, some studies found, merger is not going to give"economies of scale". if you want to know further (why, how) you have to look at many journal articles on"merger"topic. ------

[Business Attorney]

Mergers don't often reduce actual production costs significantly, but they can reduce the cost per item by spreading the general and administrative overhead across more products sold, thereby reducing the cost allocated to each product.

The other economic driver of mergers is market share. A company that has a greater share of the market typically has more pricing power than a company with a smaller share. That is not always the case, because there are many other factors involved, but it does frequently play a significant role.