{"id":54461,"date":"2021-11-05T14:43:00","date_gmt":"2021-11-05T18:43:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=54461"},"modified":"2021-11-17T11:27:58","modified_gmt":"2021-11-17T15:27:58","slug":"advantages-of-economies-of-scale","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/","title":{"rendered":"Economies of Scale: Advantages and Flaws"},"content":{"rendered":"\n<p>What are the advantages of economies of scale? Does scale come with its own disadvantages?<\/p>\n\n\n\n<p>The advantages of economies of scale include greater cost efficiency from increased product volume, competitive advantages due to size, and more sales because of brand ubiquity. Scale can also be disadvantageous because it can lead to bureaucracy and corruption.<\/p>\n\n\n\n<p>Read on to learn more about the advantages of economies of scale and its possible drawbacks.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\"><strong>On the Advantages of Economies of Scale<\/strong><\/h2>\n\n\n\n<p>Businesses often seek to grow larger because of the many advantages of economies of scale. These include:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Efficiency: The more volume you process, the more efficiently you process the volume, and your costs per unit decrease.<\/li><li><a href=\"https:\/\/www.shortform.com\/blog\/complicated-system\/\">Complex systems<\/a>, when running well, become a large moat.<\/li><li>Winner-takes-all aspects: In certain industries with <a href=\"https:\/\/www.shortform.com\/blog\/flywheel-effect\/\">flywheel effects<\/a>, the largest player continues to grow fastest and ends up dominating the industry. For example, in publishing, the largest newspapers got most of the circulation, which drives most of the advertising dollars, which then drives even more circulation.<\/li><li><a href=\"https:\/\/www.shortform.com\/blog\/social-proof-examples-cialdini\/\">Social proof<\/a>: When everyone is using your product, then the marginal customer becomes more likely to use your product.<\/li><\/ul>\n\n\n\n<p>Munger points to chain stores as an example of a dominating business model. Larger stores get large purchasing power, which lowers merchandise costs. A larger headquarters means smart staff members who can specialize in buying in certain niches and thus make smarter decisions. And more stores means more experiments that can be run simultaneously to learn more about the market.<\/p>\n\n\n\n<p>Contrast this with a single store operated by a single proprietor, which is in the inverse situation. This person lacks buying power, so merchandise costs a lot; she has to make lots of <a href=\"https:\/\/www.shortform.com\/blog\/buying-decisions\/\">purchasing decisions<\/a> across many categories, which likely means worse decisions. It\u2019s difficult for this store operator to compete.<\/p>\n\n\n\n<p>A fan of growth, Munger is skeptical of antitrust, noting that every business tries to take their success to achieve even greater success. \u201cIt\u2019s hard for me to see why Microsoft is sinful to do this. If it\u2019s a sin, then I hope all of Berkshire Hathaway\u2019s subsidiaries are sinners.\u201d<\/p>\n\n\n\n<p>However, <strong>scale can also come with its own disadvantages<\/strong>:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Inability to specialize and explore niches<\/li><li>Bureaucracy: Large organizations can become slow to make decisions<\/li><li>Corruption: Oversight becomes more difficult, and people within an organization may condone each other\u2019s corruption\u2014\u201dI won\u2019t bother you if you won\u2019t bother me.\u201d<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>What are the advantages of economies of scale? Does scale come with its own disadvantages? The advantages of economies of scale include greater cost efficiency from increased product volume, competitive advantages due to size, and more sales because of brand ubiquity. Scale can also be disadvantageous because it can lead to bureaucracy and corruption. Read on to learn more about the advantages of economies of scale and its possible drawbacks.<\/p>\n","protected":false},"author":10,"featured_media":54467,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,14],"tags":[533],"class_list":["post-54461","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-management","tag-poor-charlies-almanack","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Economies of Scale: Advantages and Flaws - Shortform Books<\/title>\n<meta name=\"description\" content=\"What are the advantages of economies of scale? 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Discover how scale creates greater competitive advantages and cost efficiencies.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2021-11-05T18:43:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-11-17T15:27:58+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2021\/11\/economics-of-scale.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"768\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Joseph Adebisi\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Joseph Adebisi\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/\"},\"author\":{\"name\":\"Joseph Adebisi\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d8daf45671a09e8745a7a9f50a03b2a0\"},\"headline\":\"Economies of Scale: Advantages and Flaws\",\"datePublished\":\"2021-11-05T18:43:00+00:00\",\"dateModified\":\"2021-11-17T15:27:58+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/\"},\"wordCount\":409,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/11\/economics-of-scale.jpg\",\"keywords\":[\"Poor Charlie&#039;s Almanack\"],\"articleSection\":[\"Economics\",\"Management\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/\",\"name\":\"Economies of Scale: Advantages and Flaws - Shortform Books\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/advantages-of-economies-of-scale\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/11\/economics-of-scale.jpg\",\"datePublished\":\"2021-11-05T18:43:00+00:00\",\"dateModified\":\"2021-11-17T15:27:58+00:00\",\"description\":\"What are the advantages of economies of scale? 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