Economies of Scale and the Socialization of Fixed Costs: Why Size No Longer Belongs Only to Firms

The concept of economies of scale is one of the most basic examples taught in undergraduate microeconomics; as you produce more, with respect to the total amount produced, the average cost per unit goes down due to the increase of fixed-cost assets distributed over a larger number of units. Historically, this concept was associated with the size of a corporation: larger corporations had lower average per-unit costs primarily due to their ability to spread fixed costs over a larger volume.

In recent years, however, the emergence of many different types of new institutional arrangements has been able to create a large enough scale that the concept of economies of scale does not solely depend on the size of the corporation. The new forms of institutional arrangements facilitate the development of the ability for any company, regardless of size, to collectively organise itself into groups and coordinate its purchasing activities so that it is able to utilise the same purchasing power and attain lower costs than it could have done individually. This is a process commonly referred to as socialising fixed costs.

Fixed Costs, Marginal Costs, and Average Cost Curves

In logistics, fixed costs such as carrier pricing structures and fulfillment workflows can disproportionately affect smaller shippers. Shipping platforms like Rollo Ship provide tooling that automates order intake, standardizes label generation, and centralizes rate comparison and tracking—functions that previously required either manual coordination or higher-cost software. By pooling shipping volume and simplifying execution, such platforms reduce operational friction and allow smaller e-commerce businesses to operate with cost and process structures closer to those of larger firms.

From a textbook perspective, this cost structure produces a downward-sloping average cost curve over a large range of output. The more units shipped, the more thinly the fixed costs are spread, lowering average cost per shipment. This is why corporate buyers shipping tens or hundreds of thousands of units annually often receive discounts that can be 30–60 percent lower than retail shipping rates.

What is new—and academically interesting—is that this same cost logic can now be accessed without any single firm expanding its output.

The Benefit to Bundling Demand and Sharing Fixed Costs

When multiple smaller buyers come together to form a joint entity (e.g., through a platform or a cooperative), their combined shipping volume starts to look like that of a big corporation. However, even though this is true, ownership and production are still able to remain separate, while purchasing is handled as one unified group.

From an economic standpoint, this situation allows all fixed costs to be shared among many different independent agents, or "indies". Each buyer is only liable to pay a portion of any fixed cost burden; however, each buyer would not have the shipping volume necessary to justify corporate pricing on their own. By creating a collective volume to support a joint purchase, buyers move further down the average cost curve.

This illustrates an important theoretical concept: economies of scale do not have to exist solely at the level of corporations; they can also exist at the level of institutions.

What Is Driving This Shift

The following factors are responsible for current digital supply chain trends:

Digital adoption of coordination. Software has dramatically reduced the cost of aggregating demand for goods, enforcing contracts, allocating costs, and managing invoices. What previously needed to occur within the internal structure of large organisations can now occur at the platform level with virtually zero marginal cost.

Sectors with high fixed costs and low marginal costs. Logistics, payments, cloud computing, and data services are offered in ways that require enormous fixed costs but have very small marginal costs as a result of how they are structured, thereby creating cost-effective opportunities for sector alignment.

The evolution of price discrimination in supply chains. Many suppliers are becoming increasingly effective at segmenting customers and creating wider price gaps based on purchase volume. This has resulted in stronger incentives for small buyers to collaborate in order to achieve lower pricing across sectors.

For instance, in the shipping industry, publicly available shipping rates for small-business e-commerce sellers can be many multiples higher than rates negotiated with enterprise-level retailers when shipping similar items. A small e-commerce seller that ships a few hundred packages per month could be paying two to three times the unit cost per package compared with a large retailer shipping to a similar area, despite using the same underlying shipping infrastructure.

The Implications of Access to Economies of Scale Through Coordination on Market Structure and Competition

Access to economies of scale through coordination allows small businesses to compete more efficiently with larger companies without having to vertically integrate or increase their employee counts.

The connection between company size and cost advantage is significantly weaker, as companies that produce goods may not benefit from lower costs solely due to their size, but rather through access to improved coordination and streamlining.

Platforms that aggregate demand for goods no longer compete on how well they produce goods, but on how effectively they aggregate demand and allocate the fixed costs of production efficiently.

Additionally, this raises a theoretical question for economists regarding the nature of economies of scale: are economies of scale a function of technological barriers, or organisational barriers? In other words, economies of scale emerging from coordination rather than ownership force a reconsideration of traditional assumptions about cost advantages that have historically been associated with firm size.

Conclusion

Economies of scale continue to hold a fundamental place in classical economic theory, but contemporary interpretations are evolving. Socialising fixed costs through bundling and coordination has reduced the importance of firm size in defining scale. Scale is now increasingly determined by the manner in which economic agents collaborate to operate their businesses. For students of economics, this shift serves as a powerful reminder that not only technologies, but also institutions shape cost curves, market power, and competition outcomes.