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Assumptions of growth and an appreciation of the economies which can be achieved through large scale are deeply embedded in the history of management thought. While events of the 1970s and 1980s began to expose and challenge some of these growth assumptions, little systematic attention has been given to articulating the diseconomies associated with growth and large scale. This paper examines the concept of diseconomies of scale, explores its manifestation in several streams of literature (environmental, social, and competitive), and concludes by suggesting an alternative “more sustain‐able” model of development.

To examine whether Japanese commercial banks exhibited economies of scale and economies of density at the time when the mega‐merger wave in Japanese banking began in the late 1990s. Since this merger wave has not yielded efficiencies, this analysis aims to shed light on whether banks, at the start of the wave, had reason to believe that larger banks would be more efficient.

Using a modified version of the translog cost function, the analysis estimates economies of scale and economies of density for Japanese city banks, trust banks, and regional banks. Then, the relationship between size and economies of scale/density and that between profitability and scale/density are explored using regression analysis.

Results suggest that larger banks (as measured by value of assets/loans/ deposits/investments, and number of employees/branches) were more likely to be in the decreasing/constant returns to scale/density region than smaller banks, The finding was statistically significant for all three types of Japanese banks. On average, city banks exhibited diseconomies of scale/density; trust banks exhibited constant returns to scale and increasing returns to density, and regional banks exhibited increasing returns to scale and density. This suggests that unions between city banks and either regional banks or trust banks may have been more likely to yield cost‐efficiencies, and raises questions concerning the efficiency motivations of the mega‐bank mergers. The findings further indicate that banks with higher sales were more likely to have exploited scale/density efficiencies, and that banks with higher net incomes were more likely to be in the increasing returns region.

This paper suggests that the mega‐merger wave in Japan in the late 1990s may not have been motivated by a desire for greater efficiencies through utilization of under‐utilized branch networks. Unlike other studies, this analysis differentiates between economies of scale and economies of density.

The article examines the firm from the perspective of transaction costs and property rights analysis. It is concluded that in the absence of transaction costs, indivisibilities and diseconomies can be dealt with through market transactions, and size of firm is independent of technological considerations. In such circumstances, size of firm is indeterminate in neoclassical theory irrespective of initial assumptions regarding market structure. It is argued that Neoclassical theory is self‐contradictory in its assumptions and that an institutionalist approach to the theory of the firm is required to resolve problems of this nature.

The consolidation of numerous highly‐fragmented US service industries has attracted considerable capital inflows during the 1990s. Fundamental questions about this phenomenon include the sources of value in consolidations, and how these firms avoid the diseconomies of scale and scope noted in the service management literature. This paper introduces the consolidation phenomenon, discusses relevant theory, and begins to develop a framework useful in the understanding of scope economies for services.

This chapter examines the main methodological issues involved in the comprehension of the cost structure of the airport industry and suggests considerations for future airport cost analyses. Such understanding has become a crucial concern for policy makers, regional planners, and managers in order to deal with optimal market design (e.g., regulation and market configuration) and airport strategies (e.g., pricing, investments, and alliances). An in-depth analysis of the economics of cost functions is presented, together with a description of the relevant multi-output cost economies measures (average incremental costs, scale and scope economies, and cost complementarities). We also discuss the assumptions underlying estimates of total versus variable cost functions and the importance of estimating a sufficiently flexible functional form. Moreover, we provide a critical survey of the international empirical literature on the cost structure of the airport industry, which highlights how econometric estimates strongly depend on the sample choice and the empirical model considered. Indeed, while econometric studies on international samples based on long-run cost function estimates show that long-run scale economies are never exhausted, single country studies mostly estimate variable cost functions and find lower values for scale economies at median sample points that tend to decrease with size. We discuss why we believe that studies based on the estimation of short-run variable cost functions offer more reliable results, given the reasonable assumption of airport overcapitalization in the short run. We conclude our work by noting that underlying policy issues related to planning and regulation, as well as to the optimal market structure of the airport sector, need to take into account the role played by vertical relationships between airports and airlines.

In public-private partnership (PPP) contracts of water utilities, of particular concern is lack of market competition. This paper focuses on the size of contracts. If governments design a large-scale transaction, economies of scale in service operation can be expected, but competition in auctions may be compromised. For small contracts many firms will apply, but at the cost of scale diseconomies in operation. The estimated cost function of PPP water utilities indicates that economies of scale exist but diminish quickly as production increases. There is no rationale for more than 300 million cubic meters of water service concessions under a single package, taking a risk of little competition. Conversely, less than 50 million cubic meters of concessions are too small; the bundling approach is required.

This paper recasts the land development problems of Williams (1991) and Quigg (1993) by explicitly dealing with the effects of scale elasticity of unit rental and unit construction cost in a real estate project. Two different diseconomies of scale constraints are imposed on the rental and cost variables. We assume a concave function for the rental variable with respect to the scale of development. Whereas, on the cost side, the diseconomies of scale effect of the variable component of the construction cost is incorporated via a elasticity of scale factor that is larger than unity. The comparative statics simulated positive relationships between the premium that keeps the option of waiting to develop alive and the volatilities of the unit rental and unit construction cost. It was also found that the cost elasticity of scale and the financing cost are factors that increase the premium of the waiting option, whereas, the rental yield factor reduces the incentive of waiting. A high rental yield tends to expedite a development project because the opportunity cost of not developing the land is high. In the case analysis involving a vacant land of 8,000 square meters at Spitafield, East London, a unit rental of £267.2 per square meter (psm) is obtained, which would breakeven a cash flows of the project when the traditional “invest now or never” assumption is made. Compared with the optimal unit rental of £677.0 psm estimated by the real option model, the traditional DCF results tend to accept the feasibility of the real estate project too early and at too low a cut‐off rental.

The purpose of this paper is to explore how healthcare managers perceive economies of scale and the underlying mechanisms for how scale/size affects performance.

Data were collected in 20 in-depth interviews with healthcare professionals from 13 healthcare delivery organizations and from a public authority that finances and contracts healthcare services. Data were coded and analysed using content analysis.

The study concludes that the impact of scale on performance is perceived by healthcare professionals to be different for different types of healthcare services: For surgery, significant scale effects related to spreading of fixed cost, the experience curve, and potential for process improvement. For inpatient care, moderate scale effects related to spreading of fixed costs and costs of doctors on on-call duty. For outpatient care, small or no scale effects.

The small sample of interviewees from a single geographical region and healthcare system limits the applicability of the findings.

The paper provides insights into how healthcare managers experience scale effects and how they consider economies of scale when planning hospital configuration. Also, past studies of economies of scale in hospitals proffer mixed results and the findings in this paper indicate a possible explanation for this inconclusiveness, i.e. differences in service mix between different hospitals.

State and local public pension plans cover a significant number of workers and represent a major component of the nation's retirement system. This study examined the size‐administrative cost relationship of public pension plans to ascertain whether cost savings can be realized by increasing pension plan size. The results indicated that while the consolidation of smaller plans will generate administrative cost savings, the consolidation of larger plans will generate savings only up to an optimal membership size at which point cost savings will end. In addition, optimal size was found to differ for active and beneficiary members indicating that membership composition needs to be considered when assessing the potential for cost savings.