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large retailers can leverage the economies of scale to undercut smaller stores on pricing.
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The famous "economies of scale" are quite overrated, and it is public transport infrastructure which helps these economies of scale to be exploited to the fullest. In the absence of this government subsidy (eminent domain prices much lower than market prices + public works, both financed by the taxpayer and not by the large retailers which benefit mostly from them), these economies of scale would need to be really huge to compensate for the need to build said infrastructure.
Why do I say this? Because the online business model of large publishers seems to follow exactly the same general patterns: competitive advantages don't come from the innovation, the ingenuity or the special capabilities of the large publishers, but from state-granted privileges.