Fun with diseconomies of scale
This article is the first time I’ve heard Cheryl’s Walmart theory repeated by a quoteable authority:
Walmart and Target, depending on your product market, control as much as 50% of the business in the United States (with Walmart expanding to the rest of the world aggressively). A large part of their success is based on being able to ship large amounts of product to stores located in the middle of nowhere at very low shipping prices. If it begins to cost more to ship goods, then it will cost more to sell the goods, and these store’s everyday low price strategy becomes ineffective.
Basically, transportation costs act as the ultimate limit to how big a business can grow. Economies of scale apply as you produce more stuff, but diseconomies of scale apply as you need to distribute more stuff. At some point, you will produce more stuff than you can profitably distribute, after which you can’t grow any more under existing conditions.
But if you could get somebody to subsizide your distribution costs–like, say, the United States armed forces–then there’s no limit to how big you can grow. In other words, the biggest big-box retailers are wholly dependent on current heavily-subsidized energy prices.