Economies of Scale and Scope Analysis Essay (Case Study Sample)

Economies of Scale and Scope
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Economies of Scale and Scope
Sirius XM, a satellite radio company, acquired Pandora, a music streaming service offering similar products. Sirius XM had many subscribers, and Pandora had loyal listeners monthly on its free and paid streaming. In that case, both companies were competing for subscribers while advancing the reputation of their brands. There are also other giant competitors, for example, Spotify and Apple Music (Iovine, 2018). Thus the best approach was for Sirius XM to acquire Pandora to realize economies of scale and economies of scope. Pandora mainly relied on ad-funded services for distributing their products, although it incorporated free streaming options. Sirius gives its subscribers free streaming to use Pandora, which encourages more subscribers.
The merger proves profitable since, currently, most subscribers enjoy streaming services in relation to old ones like downloading and watching offline (Kohli, 2020). Considering that both brands will distribute music services to their customers together, marginal cost will eventually reduce. Moreover, in economies of scope, the cost of distributing both products at once is less than distributing the music services separately, that is, Pandora streaming and Sirius radio services. The difference between economies of scale and scope is that economies of scope focus on cost advantage in mergers while economies of scale focus on average total production cost.
Synergy was created in the merger of the two companies since Sirius XM got the subscribers and the loyal customers of Pandora due to Pandora's reputable music streaming brand. Thus in terms of economies of scale