a good argument against x-inefficiency is De Alessi, L. “Property Rights, Transaction Costs, and X-Efficiency: An Essay in Economic Theory”. American Economic Review (March 1983).
The puzzlingly large productivity differences across firms even in narrowly defined industries producing standard products lead to doubts about the efficiency of some firms, often the smaller firms in an industry. Some firms produce half as much output from the same measured inputs as rivals and still survive in competition (Syverson 2011).
This diversity reflects inter-firm differences in managerial ability, organisational practices, choice of technology, the age of the business and its capital, location, workforce skills, intangible assets and changes in demand and productivity that are idiosyncratic to each individual firm (Stigler 1958, 1976, 1987; De Alessi 1983).
Small and large firms can survive in direct competition because of different trade-offs they make between hierarchy, location, product ranges, production flexibility and pace of growth (Audretsch, Prince and Thurik 1998; Audretsch and Mahmood 1994; Stigler 1939, 1983, 1987; Jovanovic 1982; Chappell, Mayer and Shughart 1993; Das, Chappell and Shughart 1993).
One reason that smaller firms are more flexible is they can hire more of the skills they need in the market to expand. Larger firms must invest more in recruitment and training before a new team member is fully productive.
Do people still read Leibenstein’s fascinating 1966 article “Allocative Efficiency vs. X-Efficiency”? They certainly did at one time: Perelman notes that in the 1970s, this article was the third-most cited paper in all of the social sciences! Leibenstein essentially made two points. First, as Harberger had previously shown, distortions like monopoly simply as a matter of mathematics can’t have large welfare impacts. Take monopoly. for instance. The deadweight loss is simply the change in price times the change in quantity supplied times .5 times the percentage of the economy run by monopolist firms. Under reasonable looking demand curves, those deadweight triangles are rarely going to be even ten percent of the total social welfare created in a given industry. If, say, twenty percent of the final goods economy is run by monopolists, then, we only get a two percent change in welfare (and this can be extended to intermediate…
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Utopia, you are standing in it! 
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