NASCAR team values have increased dramatically in the past two years. However, the days of small one or two car teams may be ending soon because the values of many small teams have fallen. The trend has driven some industry consolidation as smaller teams have merged in order to achieve some economies of scale.

The top two teams operate a total of nine cars in NASCAR and stand better odds of cashing in with virtually the same investment in operations. For example, both a one-car team and a five-car team have to operate a mechanic shop, and the five-car shop has a much better chance of victory.

Team valuations move with victories, and the top team, Hendrick Motorsports, has a value of $335 million. This amount is up more than 24 percent over last year while Petty Enterprises, a two-car team, lost 9 percent in value over the previous year. The Petty team “hasn’t won a Cup Series in nearly a decade.”

Analyze the relevance of economies and/or diseconomies of scale for the above article.

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