Munger catalogs advantages of scale as “ungodly important” for understanding which businesses succeed and fail. The list includes: geometry (cubic volume grows faster than surface area), experience curves (“doing something complicated in more and more volume” makes you more efficient), advertising reach (Procter & Gamble could afford network TV; small competitors couldn’t buy it in parts), informational advantage (Wrigley beside unknown Glotz’s — “am I going to take something I don’t know and put it in my mouth for a lousy dime?”), social proof (“if everybody’s buying something, we think it’s better”), and cascade effects in winner-take-all markets like daily newspapers where “it tends to cascade to a winner-take-all situation.”
But scale has a “great defect” that “makes the game interesting, so that the big people don’t always win”: bureaucracy. “As you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality — which is again grounded in human nature.” Sears had “layers and layers of people it didn’t need” and “an established way of thinking” where “if you poked your head up with a new thought, the system kind of turned against you.” Sam Walton, starting from one store in Bentonville, Arkansas, “played the chain store game harder and better than anyone else” — copying everything smart, adding fanaticism, and exploiting Sears’ bureaucratic paralysis. This connects to Incentive-caused bias makes good people rationalize harmful behavior — bureaucratic incentives produce territorial behavior where “if you won’t bother me, I won’t bother you.” It also connects to Systems that prevent bad behavior beat moral appeals — design the cash register, not the sermon — Walton’s system of forcing stores to follow what works was a structural solution, not a moral one.