Economies of Scale One solution to the problem of high transaction costs is to bundle the funds of many investors together so that they can take advantage ofeconomies of scale, the reduction in transaction costs per dollar of investment asthe size (scale) of transactions increases. Bundling investors’ funds together reducestransaction costs for each individual investor. Economies of scale exist becausethe total cost of carrying out a transaction in financial markets increases only alittle as the size of the transaction grows. For example, the cost of arranging a purchase of 10,000 shares of stock is not much greater than the cost of arranging apurchase of 50 shares of stock.
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