1. A large institution is able to make more use of specialisation. This can involve both people and capital. A large hospital is able to develop specialist medical units employing both highly skilled surgeons and specialist capital equipment. Such a hospital is also able to employ specialised managers and ancillary staff which will allow it to operate more efficiently.
   
   
2. A large institution is able to achieve purchasing economies of scale through bulk buying.
   
   
3. A large hospital prevents wasteful duplication of facilities. There will only be a limited number of patients with a particular condition needing particular skills and equipment in any one area. Concentrating the treatment in one place allows the most efficient use of resources.

Economies of scope

In many cases it costs less to provide a range of services in a single hospital than to have several hospitals each just producing one or two services. For example, emergency surgery and treatment of heart attacks are more cost effectively provided in a single hospital rather than two separate ones.

Price maker

In this situation, the hospital as supplier of health care services has considerable power to bargain over price. Instead of being a price taker it is a price maker. In this situation a free market does not lead automatically to a Pareto efficient outcome. In particular, if the hospital is profit maximising then it will set price above marginal costs giving an allocatively inefficient outcome. Also it is likely that the hospital will be productively inefficient, since it lacks the incentive to reduce costs which would be provided by competition.