Structuring the firm

Abstract

When a function is internalized the relevant economies of scale then become the responsibility of the parent company, but this does not have a material effect on the quantification of the cost benefits of scale. For the purposes of the generic model being constructed by this research, the argument is clarified by keeping the two concepts separate. The preceding two chapters have set down the principles of scale and demonstrated how these determine the size of the automobile industry. In particular that, for a given production process using a specified production technology, only a predefined production output range can make the most efficient use of the factors of production. In Chapter 3 I demonstrated these output ranges for each function based on data gathered from the literature, industry sources, and fieldwork interviews.