In 'The Little Book That Builds Wealth', author Pat Dorsey, discusses scale advantage:

Although building and operating the delivery network is an expensive proposition for a base level of service, the incremental profit on each item that the truck fleet delivers is enormous.

Think about it - once the fixed costs are covered, delivering an extra item that is on a delivery route is extremely profitable because the variable cost of making an extra stop is almost nothing.

Now imagine that you need to try to compete with a company that has an established distribution network. It has likely covered its fixed costs and is making large incremental profits as it delivers more stuff, while you'll need to take on large losses for a time until (if) you gain enough scale to become profitable.

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In 'Six Degrees, The Science of a Connected Age', author Duncan Watts describes how scale can sometimes be a problem:

In slowly changing environments in which generic products appeal to large numbers of consumers and the range of competing choices is limited, economies of scale are optimal. But in [a] rapidly globalizing world...

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In 'Competition Demystified', Bruce Greenwald and Judd Kahn, explain niche and the scale advantage:

...pure size is not the same thing as economies of scale, which arise when the dominant firm in a market can spread the fixed costs of being in that market across a greater number of units than its rivals. It is...

See interactive ebook on iBookstore