Good morning Geoff,
I've been giving some thought to the issue of economies of scale, and for better or for worse, here's what I think:
Economies of scale do operate in this business, but in a very peculiar way. Large companies can buy components at substantially lower prices than small companies. But this advantage is quickly reversed in periods of falling component prices, because in order to realize those cost advantages, firms need to inventory components.
I believe that other components of economies of scale do exist. For example, G&A expenses, advertising, and research.
Countervaling these savings is the tendency for big companies to become inefficient simply because they become cumbersome behemoths. When technology evolves rapidly (as in the case of PCs) you must have a methodology for rapid inclusion of the technology in your product and your advertising and marketing efforts. This is an area where I think size may work against you. For example, I noticed that Gateway was producing Pentium II machines for desktops before many of its larger counterparts. This is a subjective impression, and I could be wrong.
By the way, we must be forming a mutual admiration society because I've been posting links to your posts on ASP and other economic issues on other threads.
TTFN,
CTC |
