An article in the Wall Street Journal discussed the purchase of the small Zipcar rental car firm by the much larger Avis. The article predicted that the purchase would be successful because of the "efficiencies gained by putting the two companies together." The article also observed: "On its own, Zipcar is too small to achieve economies of scale."
a. What economies of scale may exist in the rental car industry? Why would a rental car firm that is too small be unable to achieve these economies of scale?
b. What does the article mean by "efficiencies" that might be gained by putting the two companies together?
c. If Avis had already achieved minimum efficient scale before buying Zipcar, would the combined companies still be more efficient than if they operated separately? Briefly explain.