To see how this might occur, consider an industry with substantial economies of scale one in which a few large firms can produce much more efficiently than many small ones. Suppose that by granting subsidies or tax breaks, the government can encourage domestic firms to expand faster than they would otherwise. This might prevent firms in other countries from entering the world market so that the domestic industry can enjoy higher prices and greater sales. Such a way. policy works by creating a credible threat to potential entrants. Large domestic firms, taking advantage of scale economies, would be able to satisfy world demand at a low price; if other firms entered, price would be driven below the t be point at which they could make a profit.