Diseconomies of Scope

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Diseconomies of Scope

If a supplier secures contracts for items or services that offer no mutual cost efficiences and in fact increase costs for the provision of both on average then it is an unattractive combination of contracts to win. For example, a 1-truck carrier winning a contract for a full truckload of goods from A to B on a Monday morning and then winning a separate contract for moving another full truckload from A to B on the same Monday morning, then he would need to invest in a new truck to service that business. However, the investment cost outweighs the income stream value so it is not economical.
When suppliers are allowed to convey capacity constraints, it lets them bid on both contracts and avoid the risk of a diseconomy of scope.