Several Formation Mechanisms of Scale Effect
All elements are scarce, and production materials, machinery, manpower, and data elements are also scarce because they must have material carriers. Under the premise that elements are scarce, competition is the only way to deal with scarcity. However, the intensity of competition is not universally uniform, which also leads to relatively high and low profits. Economic theory has fully demonstrated the relationship between competition intensity and profit. In the case of perfect competition, the excess profit that producers can obtain is zero. In the case of complete monopoly, producers can fully obtain the consumer demand curve The maximum excess profit on . At this point, we can link profits to monopoly.
There are two types of sources of monopoly: exogenous sources and endogenous sources. The sources of exogenous monopoly include resource endowment, qualifications granted by regulatory authorities, etc. This type of monopoly is closely related to the historical and geographical limitations of the enterprise; the sources of endogenous monopoly include technical barriers, first-mover advantages, and scale effects. Although there is a mutual conversion relationship between the exogenous source of monopoly and the endogenous source, since the exogenous monopoly is mainly due to the limitations of the macro background, it is difficult to overcome by the producers themselves, so the producers can mainly operate It is endogenous monopoly.
Although the generalization of endogenous monopoly includes multiple aspects such as technical barriers, first-mover advantages, and scale effects, from the perspective of the broad concept of production factors, the above sources of endogenous monopoly can be summarized as scale effects. In the traditional meaning, the scale effect only refers to the effect of increasing marginal returns or diminishing marginal costs of traditional business elements such as business, customers, and assets of an enterprise. Under the new business environment, the importance of movable elements such as data and technology is increasing day by day. Incorporating these new elements into the category of business elements together, the technical barrier is actually the scale effect of the technical elements, and the first-mover advantage is actually the scale effect of the technology, customers, contacts and other element resources accumulated by the first-mover business.
From a specific analysis, the scale effect of different business elements can bring monopoly advantages to producers through the following mechanisms:
(1) The level of capital scale can bring monopoly advantages in terms of capital cost and capital scale requirements. With the increase of capital scale and the expansion of operation scale, the debt undertaking and solvency of enterprises will be enhanced, the credit level will be improved, and the cost of capital will be reduced accordingly. A sufficiently low cost of capital can boost a firm's profit margins, and a firm can continue to use an element only if its cost is less than the marginal revenue. In addition, some industries, such as real estate, have capital threshold requirements.
(2) Risk sharing. As the business scale increases, the number of customers and projects increases, and risk diversification can occur between different businesses, customer groups or projects. However, if a company's market share in a certain market reaches a high level, it will inevitably bear the systemic risk of the market.
(3) Information advantage. Under the condition of good information management, scale effect will bring information advantages to producer enterprises. Information elements involve three main links in the production process: information collection, information processing, and information use. Among them, the cost of information collection and processing is shared as the scale of the enterprise increases, showing diminishing marginal costs. The marginal use cost of information elements is zero. Can be copied indefinitely under certain conditions. In order to ensure the availability and usability of information within the enterprise, maximize its value, and avoid the external effects of information, enterprises need to design their information management mechanisms according to business processes.
(4) Improve corporate reputation. Enterprises with a large number of customer groups, a long history, a high market share or a large number of branches are more likely to gain market trust. This is the intangible asset of the enterprise and can reduce the financing cost of the enterprise.
(5) Scale is the basis of network effects. The scale of customer groups or business networks is the basis for generating advantages. For example, Internet communication software such as WeChat, the larger the scale of the customer network, the higher the utility brought to users. For bond traders, the larger the trading network they participate in, the more they can find counterparties that meet their trading needs.
(6) Scale is a necessary condition for business model innovation. For example, in the fields of video websites, corporate mailboxes, network cloud disks, etc., a business model is to provide free services to most customers, and provide value-added services for customers with further needs. In this business model, the source of income is the heavy tail part of the customer group, and the investment scale of the enterprise is relatively fixed, so the customer group needs to have a certain scale. Business model innovation requires enterprises to recombine the elements of production and operation, and a certain scale and sufficient elements are the prerequisites for recombination.
The way of thinking of capitalists, that is, how to make full use of the capital (factors of production) they have mastered to make them exert scale effect. The way of thinking of the proletariat is how to fight against the scale effect and give full play to the limited production factors.
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