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Study Notes

External Economies of Scale

Level:
A-Level
Board:
AQA, Edexcel, OCR, IB

Last updated 18 Mar 2023

External economies of scale occur outside of a firm but within an industry.

External Economies of Scale - revision video

Here are five examples of industries that are clustered in a particular region and give rise to external economies of scale:

  1. Silicon Valley, California - The technology industry is heavily concentrated in Silicon Valley, California. This region has a large pool of highly skilled workers, access to capital, and a culture of innovation. This concentration of resources creates a network effect, where the presence of one firm can benefit others by attracting talent and investment, sharing knowledge and ideas, and creating spin-off businesses. This clustering effect has helped to create one of the most dynamic and innovative tech industries in the world.
  2. Hollywood, California - The film industry is also heavily concentrated in California, particularly in the Hollywood district of Los Angeles. The region benefits from a large pool of skilled actors, directors, and other industry professionals, as well as access to studios, equipment, and financing. This concentration of resources creates a network effect, where the success of one film can benefit others by attracting audiences, talent, and investment. This clustering effect has helped to create a thriving and internationally recognized film industry.
  3. London's Financial District - London's financial district, also known as the City of London, is one of the world's leading financial centers. The region benefits from a large pool of skilled workers, access to capital, and a favorable regulatory environment. This concentration of resources creates a network effect, where the presence of one financial firm can benefit others by attracting talent and investment, sharing knowledge and ideas, and creating spin-off businesses. This clustering effect has helped to create a hub of financial activity, where financial institutions can collaborate and compete with one another.
  4. Napa Valley, California - The wine industry is heavily concentrated in the Napa Valley region of California. The region benefits from a favorable climate, high-quality soil, and a culture of winemaking. This concentration of resources creates a network effect, where the success of one winery can benefit others by attracting customers, talent, and investment. This clustering effect has helped to create a thriving wine industry that is recognized for its quality and diversity.
  5. Aerospace industry in Toulouse, France - The aerospace industry is heavily concentrated in Toulouse, France, where Airbus has its headquarters and major production facilities. The region benefits from a large pool of skilled workers, a favorable regulatory environment, and a culture of aerospace innovation. This concentration of resources creates a network effect, where the success of one aerospace firm can benefit others by attracting talent and investment, sharing knowledge and ideas, and creating spin-off businesses. This clustering effect has helped to create a hub of aerospace activity, where firms can collaborate and compete with one another to drive innovation and growth.

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