In the Perelman-Gunning dialogue, it would be useful to distinguish long-run
average costs (LAC) from short-run (SAC). Starting with excess capacity, SAC
fall as demand rises, but then rise after a minimum point. That is the
simplest notion of economies to scale, the Hotelling's Bridge case. However,
there are often falling LAC in having more capacity, as with larger pipes or
aqueducts, larger buildings, wider highways, higher dams, etc. Here, the
investment decision becomes a trade-off between the cost of carrying excess
capacity during the early years, and the cost of twinning a facility later
on. It makes a great problem for students of investment theory.

Many factors interfere with optimal economic decisions in such cases.  One,
worthy of much more attention, is rent-seeking. Wicksell called attention to
premature establishment of suburban retail branches, to establish a local
monopoly, or nail down territory for future exploitation. Utility extensions
into lean, subeconomic territory secure a more permanent monopoly. Railroads
under the U.S. and Canadian land-grant systems were an egregious case. Water
supply in the Western States, with their doctrine of prior appropriation,
are an extreme case. Here, money and real capital are "invested" for the
sole purpose of acquiring natural resources, with no social capital created
at all. Other examples are legion, once one catches on to the basic idea.

Mason Gaffney