Subadditivity

In the industrial organization of the preamble subadditivity means a condition in which a good can be produced cost-effectively than by several companies together by a single company.

If a cost function subadditive in these units can always be produced by exactly one company at a lower cost than two or more companies, regardless of the production volume between these companies will be divided.

An industry is a natural monopoly if its cost function is higher than the entire quantity demanded of time in the area subadditive.

In perfect competition, ie if the price equals marginal cost, sub-additive cost structures lead to a deficit because the average costs include fixed costs and thus in the relevant area above the marginal costs ( which do not contain fixed costs ) are. Therein lies the justification for the regulation of markets.

Single-product case

If a single product produced ( single-product case ), it is better if a single provider ( ) the entire amount made ​​as if several suppliers () together produce the same amount. Formally, this is expressed by :, where the cost to produce the quantities that suppliers would produce; these subsets add up to the total amount.

The causes of the underlying rising economies of scale such homogeneous goods are in scale, for example in stochastic variable savings and learning curve effects.

More product case

In the multi - product case is sub-additive if a company has two products together can produce overall lower cost than if two companies had the same amount would each produce only one good (). This condition is met if the average costs are decreasing in the relevant area and are above the marginal cost.

In such a manufacturing different ( heterogeneous ) goods are composite effects ( economies of scope ) and Kostenkomplementarität to bear. In both cases, subadditivity also favors the existence of economies of density. However, economies of scale and scope provide neither a necessary nor a sufficient condition for subadditivity dar.