Economies of Scale

In the Carbonated Soft Drink industry economies of scale are influenced by extremely high fixed costs and very low marginal costs. Marginal costs for this industry include concentrate syrup and carbonated water. Fixed costs include among other things plant, equipment, advertising and insurance. In a situation involving economies of scale the larger the firm, the more efficient they will be. As a result of economies of scale, retail revenues in the industry come close to $30 billion in 1985. Per capita soft drink consumption nearly tripled from 1960 to 1985. Economies of scale led to increasing trade deals and discounts, which largely influenced the decline in prices. As a way of reducing production costs firms in the industry halved the amount of bottlers from 2,398 in 1975 to 1,102 in 1985. Both the increase in retail revenues and per capita consumption were a direct effect of economies of scale as well as falling prices and diminished amount of bottlers. Size matters in rela...