… [A] firm may become a monopolist because the average cost of producing the product reaches a minimum at an output rate that is big enough to satisfy the entire market at a price that is profitable. In a situation of this sort, if there is more than one firm producing the product, each must be producing at a higher-than-minimum level of average cost. Each may be inclined to cut the price to increase its output rate and reduce its average costs. The result is likely to be economic warfare—and the survival of a single victor, the monopolist.

Economies of scale in production imply that the bids submitted will offer increasing quantities at lower per unit costs, but production scale economies imply nothing obvious about how competitive these prices will be.…