Law firms don't have economies of scale. Two partnerships can serve N clients roughly as well as one larger company could. Most software has huge economies of scale, so it's unlikely small partnerships would be successful long-term unless they filled a tiny niche (read not-very-profitable) that wasn't worth pursuing by a bigger company.
> Law firms don't have economies of scale. Two partnerships can serve N clients roughly as well as one larger company could.
That's not really accurate. Larger law firms can have more specialized attorneys; they can offer clients a more comprehensive set of expertise - not only in areas of law, but geographically ('let me call an IP attorney in the Paris office'); they can have larger personal and business networks, which provide access to more resources, more business, enable them to broker more solutions for clients, and which give them more influence.
Large law firms provide a one-stop-shop that some clients, like large businesses, are willing to pay a premium for due to the convenience factor. They’re not providing law services more efficiently, measured by cost, compared to smaller firms.
It's more than one-stop-shop services (see the GP), and it is more efficient in one way: One stop shop, specialized legal skills, etc. are more efficient for certain tasks than the services small firms provide. Also, it can be more efficient in another way: If I said low-wage software developers were more cost-efficient, what would you say? The same goes for attorneys.
I find myself on the side of big firms here, but small ones also are more efficient in some ways. My only point is that, for some services, there is an economy of scale.
By the definition, software isn't an economy of scale. Unit cost doesn't decrease by magnitude as output increases. A utility company is an example of economy of scale.
Economies of scale don’t just have to be areas where unit marginal costs decrease as volume increases, they can also be areas where fixed costs dominate marginal costs, which is the case for many software firms because marginal costs are usually very small
Economies of scale exist when the average cost decreases as the number of units increases. The average cost for N units is the sum total of all fixed and per-unit costs divided by N.
