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Economies and diseconomies of scale - examples


Multiple retailers and small grocers

Multiple retailers such as Wal-Mart, Tesco, Sogo and Carrefour exploit economies of scale as much as they can. They maximise the benefits of bulk buying as they purchase huge quantities of materials from suppliers. They become the major customers even for the largest of manufacturers such a Heinz. They also get the advantages of the economic employment of specialist staff, power with the banks, and, as major employers of staff, influence within the local authorities. Prices are low to the customer, profits reasonable to the shareholders. Some stakeholders may suffer, e.g. the small supplier, particularly of agricultural products may be forced to offer lower and lower prices to maintain their supply contracts.

What can the small suppliers do? One solution is to develop power by themselves by merging with other suppliers of by forming voluntary groups or cooperatives to become larger units and gain their own economies of scale.