increasing returns
Increasing Returns means that as a business or economy produces more, it gets cheaper and easier to produce even more, instead of harder.
In plain English
A woman frying akara by the roadside in Ibadan knows exactly what it costs her to make the hundredth ball. It costs almost the same as the first, maybe even a bit more, because her small pan gets tired, her oil needs changing, and her arms get weary. That is the normal world most small traders live in, where more output slowly gets harder.
Now cross the road, figuratively, to a company like Dangote Cement or a tech platform like Flutterwave. Once Dangote has built the massive plant, crushed the limestone, and set up the kilns, each extra bag of cement costs less to produce than the one before it, because the huge upfront cost is now spread thinner and thinner. Once Flutterwave has built its payment software, processing the millionth transaction costs almost nothing extra, while the first transaction may have swallowed years of engineering work and money.
That second world is what economists call increasing returns. Instead of production becoming harder as you scale, it becomes easier and cheaper per unit. The big cost is at the start, in building the factory, writing the code, laying the network cables, and after that, growth almost feeds itself.
This is why certain industries tend to produce giants rather than many equal sized competitors. Think of how MTN and Airtel dominate telecoms in Nigeria rather than fifty small phone networks, or how, in the United Kingdom, a handful of banks and supermarkets dominate rather than hundreds of tiny rivals. Once a network or a platform gets big, it becomes cheaper for it to serve one more customer than for a smaller rival to even get started.
For a Nigerian in London sending money home through an app, increasing returns explain why one or two transfer platforms end up handling most of the traffic. The more users join, the cheaper and faster the service becomes to run, and the harder it gets for a small new app to compete on price alone.
Say a Nigerian software company spends ₦50,000,000 building an app used by farmers to track crop prices. Serving the first 1,000 farmers might cost ₦50,000 each once you spread the building cost. Serving the next 100,000 farmers might cost only ₦500 each, because the hard, expensive work is already done and each new user is nearly free to add.
Questions people ask
Is increasing returns the same as economies of scale?
They are close cousins. Economies of scale usually refer to lower average cost as a firm grows, while increasing returns is the broader economic idea describing why output can rise faster than the resources put in, especially once a large upfront investment starts paying off.
Why do some Nigerian industries never show increasing returns?
Industries built on manual, physical work, like roadside food vending or tailoring by hand, often stay limited by the tailor's own time and energy, so more output usually needs proportionally more effort, unlike a digital platform that can multiply its reach without multiplying its costs the same way.
Does increasing returns mean bigger companies are always better for the economy?
Not automatically. It can bring cheaper prices and wider access, as seen with mobile networks reaching remote Nigerian towns, but it can also lead to a few firms controlling a market, which is why regulators keep an eye on companies that grow through increasing returns.
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