Diseconomies of Scale

From Rasmapedia
Jump to navigation Jump to search

I suppose plain old regression to the mean is one way of putting the selection effects. You have a teacher do X, and it works because he got lucky or is an unusually talented teacher or was having a good year, and you publish. You have 1,000 teachers do X, and nothing happens.

Economics provides a few special reasons why scaling fails.

1. If you are the first to do X, you profit, but then when everybody else does it, you all drive prices down and profits are back to 0 (tho consumers win).

2. If you try using input X, it works and you profit, but when you scale up 1,000 times, you drive up the price of X, and your profits go back to zero-- only the owners of X benefit.

3. If you do X on a small scale, it works because you can manage it, but when you scale up 1000 times, you can't manage everything by yourself and it all falls apart.

4. If you apply improvement X, it works because you start with the situation where it works best, but when you repeat it 100 times you run into diminshing returns as you apply it to less and less applicable situations. (The Wal-Mart problem: their first stores were in great locations, but they ran out of great locations, so their average profit per store (not total profit) fell.