Charlie Munger: The Complete Investor (Columbia Business School Publishing)

by Tren Griffin

in the aftermath of that success. There were many times in history when railroads were very lousy investments. Regarding the impact of supply-side economies of scale, Munger has pointed out: In some businesses, the very nature of things cascades toward the overwhelming dominance of one firm. It tends to cascade to a winner-take-all result. And these advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, “to hell with it. We’re either going to be number one or two in every field we’re in or we’re going to be out.” That was a very tough-minded thing to do, but I think it was a correct decision if you’re thinking about maximizing shareholder wealth. —CHARLIE MUNGER, USC BUSINESS SCHOOL, 1994 If it is cost efficient for a company to produce several different products or services, a company can also benefit from supply-side economies of scope. To benefit from economies of scope, a business must share resources across markets while keeping the amount of those resources largely fixed. Businesses that desire to benefit from economies of scope must avoid running as isolated units.