Tag Archives: cost

The economics of faults

Toyota is set to recall over seven million cars, following the discovery of issues with window switches, as reported on the BBC. Recalls can take a number of different forms – they can involve dealers carrying out an on-site repair, an immediate replacement, or a complete withdrawal of a good from sale. Continue reading

Sharing with competitors

The phenomenon of economies of scale can be seen in many industries – particularly where there are large fixed costs, such as a mobile base station network, a graphics engine for videogames, or the turbines on a wind farm.  In order to reduce costs as far as possible, operations should be made as large as is feasible.  However, companies only have a fixed level of demand, which limits their ability to take advantage of this.

One way of increasing demand is to merge with a competitor, and therefore acquire a large number of extra customers.  This, of course, is a major exercise and involves regulatory problems, costs of due diligence, changes to operations and governance, and many other factors.  Rather than this drastic step, companies can collaborate to share costs across their combined userbase. Continue reading