Editing Economies of scale (section)

==Economies of scale in the history of economic analysis==
===Economies of scale in classical economists===
The first systematic analysis of the advantages of the [[division of labour]] capable of generating economies of scale, both in a static and dynamic sense, was that contained in the famous First Book of [[The Wealth of Nations|Wealth of Nations]] (1776) by [[Adam Smith]], generally considered the founder of [[political economy]] as an autonomous discipline.

[[John Stuart Mill]], in Chapter IX of the First Book of his Principles, referring to the work of [[Charles Babbage]] (On the economics of machines and manufactories), widely analyses the relationships between increasing returns and scale of production all inside the production unit.

===Economies of scale in Marx and distributional consequences ===
In {{lang|de|[[Das Kapital]]}} (1867), [[Karl Marx]], referring to [[Charles Babbage]], extensively analyzed economies of scale and concludes that they are one of the factors underlying the ever-increasing concentration of capital. Marx observes that in the capitalist system the technical conditions of the work process are continuously revolutionized in order to increase the surplus by improving the productive force of work. According to Marx, with the cooperation of many workers brings about an economy in the use of the means of production and an increase in productivity due to the increase in the division of labour. Furthermore, the increase in the size of the machinery allows significant savings in construction, installation and operation costs. The tendency to exploit economies of scale entails a continuous increase in the volume of production which, in turn, requires a constant expansion of the size of the market.{{sfnp|Marx|1867|pp=432–442, 469}} However, if the market does not expand at the same rate as production increases, overproduction crises can occur. According to Marx the capitalist system is therefore characterized by two tendencies, connected to economies of scale: towards a growing concentration and towards economic crises due to overproduction.{{sfnp|Marx|1894|pp=172, 288, 360–365}}

In his 1844 ''[[Economic and Philosophic Manuscripts of 1844|Economic and Philosophic Manuscripts]]'', [[Karl Marx]] observes that economies of scale have historically been associated with an increasing concentration of private wealth and have been used to justify such concentration. Marx points out that concentrated private ownership of large-scale economic enterprises is a historically contingent fact, and not essential to the nature of such enterprises. In the case of agriculture, for example, Marx calls attention to the [[wikt:sophistry|sophistical]] nature of the arguments used to justify the system of concentrated ownership of land:

: As for large landed property, its defenders have always sophistically identified the economic advantages offered by large-scale agriculture with large-scale landed property, as if it were not precisely as a result of the abolition of property that this advantage, for one thing, received its greatest possible extension, and, for another, only then would be of social benefit.<ref name=marx1844>Karl Marx, ''[[Economic and Philosophic Manuscripts of 1844]]'', M. Milligan, trans. (1988), p. 65–66</ref>

Instead of concentrated private ownership of land, Marx recommends that economies of scale should instead be realized by [[Cooperative|associations]]:

:Association, applied to land, shares the economic advantage of large-scale landed property, and first brings to realization the original tendency inherent in land-division, namely, equality. In the same way association re-establishes, now on a rational basis, no longer mediated by serfdom, overlordship and the silly mysticism of property, the intimate ties of man with the earth, for the earth ceases to be an object of huckstering, and through free labor and free enjoyment becomes once more a true personal property of man.<ref name=marx1844/>

===Economies of scale in Marshall===
[[Alfred Marshall]] notes that [[Antoine Augustin Cournot]] and others have considered "the internal economies [...] apparently without noticing that their premises lead inevitably to the conclusion that, whatever firm first gets a good start will obtain  a  monopoly of the whole business of its trade … ".<ref>{{harvp|Marshall|1890|loc=380, note 1}}; cf. {{harvp|Cournot|1838|pp=96 ff.}}</ref>  Marshall believes that there are factors that limit this trend toward monopoly, and in particular:
* the death of the founder of the firm and the difficulty that the successors may have inherited his/her entrepreneurial skills;
* the difficulty of reaching new markets for one's goods;
* the growing difficulty of being able to adapt to changes in demand and to new techniques of production;
* The effects of external economies, that is the particular type of economies of scale connected not to the production scale of an individual production unit, but to that of an entire sector.{{sfnp|Marshall|1890|pp=232–238, 378–380}}

===Sraffa's critique===
[[Piero Sraffa]] observes that Marshall, in order to justify the operation of the law of increasing returns without it coming into conflict with the hypothesis of free competition, tended to highlight the advantages of external economies linked to an increase in the production of an entire sector of activity.    However, "those economies which are external from the point of view of the individual firm, but internal as regards the industry in its aggregate, constitute precisely the class which is most seldom to be met with." "In any case -  Sraffa notes – in so far as external economies of the kind in question exist, they are not linked to be called forth by small increases in production," as required by the marginalist theory of price.{{sfnmp|Sraffa|1926|1p=49|2a1=Sraffa|2y=1925}} Sraffa points out that, in the equilibrium theory of the individual industries, the presence of external economies cannot play an important role because this theory is based on marginal changes in the quantities produced.

Sraffa concludes that, if the hypothesis of [[perfect competition]] is maintained, economies of scale should be excluded. He then suggests the possibility of abandoning the assumption of free competition to address the study of firms that have their own particular market.{{sfnp|Sraffa|1926|p=58}}  This stimulated a whole series of studies on the cases of [[imperfect competition]] in Cambridge. However, in the succeeding years Sraffa followed a different path of research that brought him to write and publish his main work ''Production of commodities by means of commodities'' {{harv|Sraffa|1966}}. In this book, Sraffa determines relative prices assuming no changes in output, so that no question arises as to the variation or constancy of returns.

=== Rule of six-tenths ===
In 1947, [[DuPont]] engineer Roger Williams Jr. (1930–2005) published a rule of thumb that costs of chemical process are roughly proportional to the tonnage [[Power law|in power ~0.6]].<ref>{{Cite journal |first=Roger |last=Williams, Jr. |title="Six-Tenths Factor" Aids in Approximating Costs |url=https://archive.org/details/sim_chemical-engineering_1947-12_54_12/page/124/mode/2up |journal=Chemical Engineering |volume=54 |issue=12 |date=December 1947 |publisher=Access Intelligence LLC |others=Internet Archive |language=en |access-date=October 1, 2024}}</ref> In the following decades it became widely adopted other engineering industries<ref name=":0" /><ref>{{Cite journal |last1=Tribe |first1=M. A. |last2=Alpine |first2=R. L. W. |date=1986-12-01 |title=Scale economies and the "0.6 rule" |url=https://www.sciencedirect.com/science/article/abs/pii/S0167188X86800258 |journal=Engineering Costs and Production Economics |volume=10 |issue=4 |pages=271–278 |doi=10.1016/S0167-188X(86)80025-8 |issn=0167-188X}}</ref> and terrestrial mining,<ref>{{Cite journal |last1=Sharkh |first1=Basel Abu |last2=Al-Amoudi |first2=Ahmad A. |last3=Farooque |first3=Mohammed |last4=Fellows |first4=Christopher M. |last5=Ihm |first5=Seungwon |last6=Lee |first6=Sangho |last7=Li |first7=Sheng |last8=Voutchkov |first8=Nikolay |date=2022-03-25 |title=Seawater desalination concentrate—a new frontier for sustainable mining of valuable minerals |url=https://www.nature.com/articles/s41545-022-00153-6 |journal=npj Clean Water |language=en |volume=5 |issue=1 |page=9 |doi=10.1038/s41545-022-00153-6 |bibcode=2022npjCW...5....9S |issn=2059-7037|doi-access=free }}</ref> sometimes (e. g., in electrical power generation) with modified exponential scaling factors.<ref>{{Cite journal |last=Phung |first=D. L. |date=1987-05-01 |title=Theory and evidence for using the economy-of-scale law in power plant economics |language=en |pages=ORNL/TM–10195, 6304295 |doi=10.2172/6304295|osti=6304295 |s2cid=150880938 }}</ref><ref>{{Cite journal |last1=Dismukes |first1=David E. |last2=Upton |first2=Gregory B. |date=2015-11-01 |title=Economies of scale, learning effects and offshore wind development costs |url=https://www.sciencedirect.com/science/article/abs/pii/S0960148115002827 |journal=Renewable Energy |volume=83 |pages=61–66 |doi=10.1016/j.renene.2015.04.002 |bibcode=2015REne...83...61D |issn=0960-1481}}</ref>

===Economies of scale and the tendency towards monopoly: "Cournot's dilemma"===
It has been noted that in many industrial sectors there are numerous companies with different sizes and organizational structures, despite the presence of significant economies of scale.  This contradiction, between the empirical evidence and the logical incompatibility between economies of scale and competition, has been called the 'Cournot dilemma'.{{sfnp|Arrow|1979|p=156}}  As Mario Morroni observes, Cournot's dilemma appears to be unsolvable if we only consider the effects of economies of scale on the dimension of scale.{{sfnp|Morroni|2006|pp=253–256}}  If, on the other hand, the analysis is expanded, including the aspects concerning the development of knowledge and the organization of transactions, it is possible to conclude that economies of scale do not always lead to monopoly. In fact, the competitive advantages deriving from the development of the firm's capabilities and from the management of transactions with suppliers and customers can counterbalance those provided by the scale, thus counteracting the tendency towards a monopoly inherent in economies of scale. In other words, the heterogeneity of the organizational forms and of the size of the companies operating in a sector of activity can be determined by factors regarding the quality of the products, the production flexibility, the contractual methods, the learning opportunities, the heterogeneity of preferences of customers who express a differentiated demand with respect to the quality of the product, and assistance before and after the sale. Very different organizational forms can therefore co-exist in the same sector of activity, even in the presence of economies of scale, such as, for example, flexible production on a large scale, small-scale flexible production, mass production, industrial production based on rigid technologies associated with flexible organizational systems and traditional artisan production. The considerations regarding economies of scale are therefore important, but not sufficient to explain the size of the company and the market structure. It is also necessary to take into account the factors linked to the development of capabilities and the management of transaction costs.{{sfnp|Morroni|2006|pp=253–256}}