Economies of scale and scope in network industries: Lessons for the UK water and sewerage sectors
AbstractMany studies of the water and sewerage industries place significant importance on the benefits of economies of scale and scope and how these relate to vertically integrated firms. We have re-examined the early literature on scale and scope economies and find that these studies do not implicitly preclude non-integrated firms from fully utilising assets for multi-product activities; they can still reap scope economies through trading in the open market. Further, we demonstrate difficulties in separating these two types of economies when assessing firm performance. Trade-offs between governance and production costs are a key issue in determining the value of vertically integrated firms that may undergo divestiture. We discuss the present policy debate regarding the optimal structure of the water and sewerage markets in England and Wales in the light of this, and recommend avenues of research that will help determine the optimal policy.
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Bibliographic InfoArticle provided by Elsevier in its journal Utilities Policy.
Volume (Year): 21 (2012)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30478
Economies of scale; Economies of scope; Water and sewerage; UK; Network industries; Ownership structure;
Other versions of this item:
- Pollitt, M. J. & Steer, S. J., 2011. "Economies of Scale and Scope in Network Industries: Lessons for the UK water and sewerage sectors," Cambridge Working Papers in Economics 1152, Faculty of Economics, University of Cambridge.
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
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