Economies and diseconomies of scale

Just in case anybody thinks I was too harsh on Dave The Chameleon, here's a bit of economic theory that they obviously don't cover on the PPE degree at Oxford.

There are 'economies of scale' (EOS) and diseconomies of scale (DOS) to a business; this leads to the concept of 'minimum efficient scale' (MiES) and presumably 'maximum efficient scale' (MxES).

Think about a typical High Street.

1. Some types of business belong to large chains - that's the banks, supermarkets, high street clothes shops, white goods retailers, garden centres etc. These are businesses where there are significant EOS, hence the MiES is large and the market is shared up between a few large players.

2. Some types of business are nearly all small, family, owner-managed, for example, hairdressers/beauty salons, solicitors, cafés/restaurants, corner-shops/off-licences, car repair workshops, tailors, school uniform shops, musical instrument shops, second hand bookshops, launderettes and dry cleaners. These tend to be more specialist/service orientated. So here we have DOS and a small MxES; there is no particular advantage to hairdressers/beauty salons into consolidating into a national chain ... so they don't.

3. Then there is a third category, where the MxES is far larger than the MiES, and EOS and DOS largely cancel out, i.e. these types of business can fall either into owner-managed or national chain (or indeed franchise, which looks like national chain, but is in fact owner-managed). Businesses in this category include newsagents, pubs, pizzerias, burger bars, coffee shops, estate agents, cinemas, record shops, travel agents etc, and Spar supermarkets that are (I believe) a franchise and tend to be barely larger than your average corner shop.

The point of all this is, it is futile to invent rules that favour small shops over large shops. Some types of business will always be small and do not need to fear competition from the majors; other types of business tend to be carved up between a few large players.

You can favour all types of business - and thereby help employees and consumers as well - by deregulating and having simple, flat taxes - above and beyond that, it is best just to leave them to get on with it.