Diseconomies of scale

the forces that cause larger firms and governments to produce goods and services at increased per-unit costs

Usually, when a company grows, it is able to produce more units, at a lower per-unit price. In economics, this is known as economies of scale. Unfortunately, this is only true up to a certain point. When the company grows beyond that point, producing goods or services gets more expensive again. This effect is known as diseconomies of scale. There are many causes for this effect:

  • The communication costs are larger in bigger companies. It may also be more difficult to reach a given person.
  • In companies with more employees, it is probable that two people will be doing the same thing. This is known as duplication of effort.
  • Larger companies have longer response times.
  • Sometimes people are afraid to change procedures that worked in a smaller company, but that need adapting to a bigger company.