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Distinguishing Multiproduct Economies of Scale from Economies of Density on a Fixed-Size Transport Network

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  • Leonardo Basso

    ()

  • Sergio Jara-Díaz

    ()

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    Abstract

    In order to produce a certain vector of flows over a fixed-size network, a transport firm has to choose, among many other things, a route structure. In accommodating increasing traffic, transport firms will adjust their route structure to minimize costs. However, transport industry structure analysis considers only, often implicitly, the case where the route structure is fixed. In this paper, economies of density, that represents the latter, are conceptually distinguished from economies of scale on fixed-size networks, S, where we allow the route structure to vary. Intuition with a simple example, evidence from the airline industry and the derivation of a formula to calculate S from an estimated cost function are provided. Results are both novel and encouraging. Transport firms, while closer to exhaust economies of density, would still have available sizeable economies of scale. Copyright Springer Science + Business Media, LLC 2006

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    Bibliographic Info

    Article provided by Springer in its journal Networks and Spatial Economics.

    Volume (Year): 6 (2006)
    Issue (Month): 2 (June)
    Pages: 149-162

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    Handle: RePEc:kap:netspa:v:6:y:2006:i:2:p:149-162

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    Web page: http://www.springerlink.com/link.asp?id=106607

    Related research

    Keywords: Scale economies; Returns to density; Air transport networks;

    References

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    1. Leonardo J. Basso & Sergio R. Jara-Díaz, 2005. "Calculation of Economies of Spatial Scope from Transport Cost Functions with Aggregate Output with an Application to the Airline Industry," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 39(1), pages 25-52, January.
    2. Tae Hoon Oum & Anming Zhang & Yimin Zhang, 1995. "Airline Network Rivalry," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 836-57, November.
    3. Ivaldi, M. & McCullough, G., 1999. "Density and Integration Effects on Class I U.S. Freight Railroads," Papers 99.526, Toulouse - GREMAQ.
    4. Panzar, John C & Willig, Robert D, 1977. "Economies of Scale in Multi-Output Production," The Quarterly Journal of Economics, MIT Press, vol. 91(3), pages 481-93, August.
    5. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
    6. Karlaftis, Matthew G. & McCarthy, Patrick, 2002. "Cost structures of public transit systems: a panel data analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 38(1), pages 1-18, January.
    7. Baltagi, Badi H & Griffin, James M & Rich, Daniel P, 1995. "Airline Deregulation: The Cost Pieces of the Puzzle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 245-60, February.
    8. Wenbin Wei & Mark Hansen, 2003. "Cost Economics of Aircraft Size," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 37(2), pages 279-296, May.
    9. Swan, William M, 2002. "Airline route developments: a review of history," Journal of Air Transport Management, Elsevier, vol. 8(5), pages 349-353.
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    Cited by:
    1. Kraus, Marvin, 2008. "Economies of scale in networks," Journal of Urban Economics, Elsevier, vol. 64(1), pages 171-177, July.
    2. Johnston, Ahren & Ozment, John, 2013. "Economies of scale in the US airline industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 51(C), pages 95-108.

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