Two primary opposing factors influence the size of a firm within a given segment of the free market:

Up to a certain point, larger businesses, such as those formed by consolidation (mergers) of smaller businesses, can achieve more efficient methods of production. By the law of returns (pp. 4.4:46-50), however, such "economies of scale" only apply to businesses below a certain size (depending on the market).
As firms become larger and larger, their ability to generate and apply the information they need for efficient operation is increasingly impaired. In part, this limitation arises from the enormous costs of coordinating many departments and individuals—a difficulty familiar to almost anyone who has been employed by a large corporation. Furthermore, if a firm grows to the point where the number of competitors in its market is significantly diminished, then less information is generated by the competitive process itself—information about consumer needs, production processes, and in particular about the marginal productivity of various factors of production. In terms of Section 5, where this problem will be explored further, the company experiences a loss of "information synergy." This loss makes it increasingly difficult to operate the company profitably and renders it vulnerable to competition, unless management is extraordinarily efficient and sagacious.