What is “economy of scale” and what role does it play in a company that is consolidating using the rollup strategy?
In video 1 we defined what a rollup is and we mentioned the typical motivation behind a rollup which is to achieve an economy of scale.
Economy of scale can be defined this way:
“A proportionate saving in costs gained by an increased level of production.”
When a company buys up smaller privately-owned parts stores, repair shops, or mobile repair businesses they are often able to streamline operations and make them more efficient.
They increase their buying power because instead of buying for one location they are buying for hundreds of locations.
In the next video of this series, we will answer this question: Who benefits from all of this, and what impact does this have on the industry?
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