On the subject of economies of scale, I find chain stores quite interesting. Just think about it.
The concept of a chain store was a fascinating invention. You get this huge purchasing power—which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments.
And you get specialization. If one little guy is trying to buy across twenty-seven different merchandise categories influenced by traveling salesmen, he’s going to make a lot of dumb decisions.
But if your buying is done in headquarters for a huge bunch of stores, you can get very bright people who know a lot about refrigerators and so forth to do the buying.
The reverse is demonstrated by the little store where one guy is doing all the buying. So there are huge purchasing advantages.
Some come from simple geometry.
If you’re building a great circular tank, obviously as you build it bigger, the amount of steel you use in the surface goes up with the square and the cubic volume goes up with the cube.
So as you increase the dimensions, you can hold a lot more volume per unit area of steel.
There are all kinds of things like that where the simple geometry—the simple reality—gives you an advantage of scale.