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Why do some firms grow to giant size and dominate their markets? Economies of scale in an industry attract entrepreneurs who expand operations, increase output, lower costs in pursuit of impressive profits, and shape the structure of the market. Once one firm expands into lower costs, competitors strive to follow suit unless they can protect their market share by strongly differentiating their product or service. If competitors increase their output in pursuit of scale economies, the number of firms the market can support declines, and the market structure moves toward oligopoly (a few firms). A few big firms that capture increasing returns are socially beneficial if they improve the efficiency of the industry's use of scarce resources and reduce prices to consumers even as profits accumulate. Sam Walton seized increasing returns to scale in retail sales to become one of the richest men in the world. But Walton benefitted society as well as his pocketbook. He gave consumers lower prices on much of what they buy for day-to-day use.
 
The 1990s witnessed a wave of scale-economies-seeking consolidation in the death-care industry as several North American firms bought funeral homes, cemeteries, casket manufacturers, crematories, and even flower shops in the United States and abroad. The acquisitors' rising stock values reflected the profits investors anticipated just as the consolidated companies' rising charges for death-care services revealed that lower costs were not going to be shared with consumers.1

In 1996 The Economist observed that "big business interests lie behind America's $15-billion-a-year funeral industry. For now, it is still largely family-owned: of America's 22,000 funeral homes, more than 85 percent are independent. But a handful of large companies have been snapping up many of them, along with related businesses such as the management of cemeteries and crematoriums, and generating handsome profits in the process."2 And Time reported that "large death-care companies are racing to buy up as many independent funeral homes as possible—not out of any desire to share the resulting economies of scale and cut the cost of funerals but rather to boost prices still higher."3

When the 20th century turned into the 21st, the expansion was over. The leading conglomerates'* equities were trading on the New York Stock Exchange at fractions of their 1990s highs, delisting the number-two acquisitor. The first round failure to corral scale economies in death care did not bring an end to the prospect of concentration of a substantial portion of the industry, but it generated counter-forces that will limit the extent, speed, and impact of that concentration.

The typical mortuary has excess capacity because death care is a high fixed-cost business. Hearses, for example, are expensive vehicles with limited uses: moving bodies from place to place and especially carrying a body-in-casket from mortuary to church and on to cemetery. Once the manufacturer—usually Cadillac in the United States, Rolls Royce in the United Kingdom, Daimler in Germany, and equally expensive marques in other countries; hearses are usually built and sold under the marque of a particularly expensive brand—makes exterior changes in the hearse it is marketing, mortuaries must purchase a new one to stay competitive. The replaced hearse, however, is not likely to be anywhere near worn out from use at probably fewer than a thousand funerals. The market for used hearses is limited. A large metropolitan market may offer hearse rental, but most mortuaries find it necessary to own their own vehicles.4

Laboratories for treatment of corpses are expensive to build, equip, maintain, and staff. Mortuaries typically use these facilities well below their capacity. The same is true for viewing rooms and other funeral-specific construction like refrigerated storage chambers. Most of the mortuary staff is usefully employed only when preparing bodies for burial or laying them out for viewing, or when bodies are in the process of interment or cremation. The mortuary can hire part-time employees and pay them only for hours worked, but some staff are professionals who must earn full-time pay even when the mortuary is idle.

If the mortuary uses equipment and crews to dig graves, the capacity problem emerges again. It must purchase (or rent), maintain, and man trucks, digging equipment, tents, chairs, fake grass, vault installation equipment, and storage sheds. If a crematorium is part of the mortuary, funeral buyers must pay for yet more expensive machinery at inefficient rates, because they are paying for down time as well as use time. Funeral homes charge their customers not only for the use of facilities, equipment, and staff applied to a funeral but also for a portion of the cost of maintenance of the people, buildings, and machinery when they are idle.5

The cost-per-funeral falls as the number of burials a mortuary handles goes up, because the idle time decreases, and the cost of people and equipment can spread itself over more funerals. Competing mortuaries often find mergers attractive because the new firm can eliminate redundant facilities and thereby lower the average cost of a funeral. And, unless there is a competitor willing to lower prices to capture market share, profits rise. The elimination of all duplicate capital would be ideally suited to maximizing profits, but deceptive marketing requires a facade of competition. Facilities immediately and intimately visible to customers remain despite mergers to present a public image of competition. Mortuary names stay the same to give buyers the impression that each firm in the cluster is competing with every other mortuary. Survivors are occasionally shocked to learn that several mortuaries prepare all the buried or cremated bodies in the same laboratory, by the same staff, deliver them to the crematory or cemetery by the same hearse, and lower them into the grave on the same lowering machinery into a hole the same backhoe excavated. Only the viewing rooms and the office structures of the component mortuaries are separate.

Because merged mortuaries have the potential of drastically reducing costs while maintaining prices, public outrage reigns when news escapes that local funeral homes are not in fact competitive but belong to the same company. Usually the public learns of clustering when an investigator publishes an exposé, or the press reports the loss of a body in the shuffle of corpses between funeral home and laboratory, or a family discovers they have never before seen the body they are about to present for public viewing. Mortuary errors are not restricted to clusters, but the complexities of coordinating several funeral homes behind a shroud of secrecy provide more opportunities for error than exist for the single-firm operation that keeps the corpses it handles within one facility.6 Nevertheless, the risk of mistakes and public exposure is more than offset by high profits and the appearance of competition that may keep the profits from attracting new funeral homes. Several mortuaries in a community, even if managed as a single firm, increase the resistance of citizens and zoning authorities to new funeral homes. Despite their neat appearance and quiet operation, mortuaries are not welcome additions to neighborhoods.7