Economies of Scale

Industrial clusters allow companies to make use of available information that would be easily accessible. They also provide an easier route for companies to merge. The principals of economies of scale can be use to understand why companies merge to maximise profits. When companies merge they automatically get the market from the other firm, this itself could lead to a monopoly. The joint companies would then have, for example two finance, marketing and production sections. Therefore this could be then reduced, and thus lowering the costs and increasing profits. This gives the firm, with correct rationalising of labour etc., to take full use of economies of scale. Michael Porter argues "that for a business to be truly competitive both domestically and internationally, it must be part of an 'industrial structure'". However with the ever-increasing advance in technology how important is geographical location for industry today?…