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Scope and scale economies in multi-utilities: evidence from gas, water and electricity combinations

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  • Giovanni Fraquelli
  • Massimiliano Piacenza
  • Davide Vannoni

Abstract

Within the recent debate on liberalization of local public services, the paper investigates the cost properties of a sample of Italian public utilities providing in combination gas, water and electricity. The estimates from a Composite Cost Function econometric model (Pulley and Braunstein, 1992) are compared with the ones coming from other traditional functional forms such as the Standard Translog, the Generalized Translog, and the Separable Quadratic. The results highlight the presence of global scope and scale economies only for multi-utilities with output levels lower than the ones characterizing the 'median' firm. This indicates that relatively small specialized firms would benefit from cost reductions by evolving into multi-utilities providing similar network services such as gas, water and electricity. However, for larger-scale utilities the hypothesis of null cost advantages is not rejected. Thus, it is possible that the recent diversification waves of leading companies are explained by factors other than cost synergies, so that the welfare gains that can be reasonably expected from such examples of horizontal integration, if any, are likely to be very low.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 18 ()
Pages: 2045-2057

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Handle: RePEc:taf:applec:v:36:y:2004:i:18:p:2045-2057

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Cited by:
  1. Carvalho, Pedro & Marques, Rui Cunha & Berg, Sanford, 2011. "A meta-regression analysis of benchmarking studies on water utilities market structure," MPRA Paper 32894, University Library of Munich, Germany.
  2. Goto, Mika & Makhija, Anil K., 2007. "The Impact of Competition and Corporate Structure on Productive Efficiency: The Case of the U.S. Electric Utility Industry, 1990-2004," Working Paper Series 2007-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  3. Croux, Christophe & Reusens, Peter, 2011. "Do stock prices contain predictive power for the future economic activity? A Granger causality analysis in the frequency domain," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/312724, Katholieke Universiteit Leuven.
  4. Piacenza, Massimiliano & Vannoni, Davide, 2004. "Choosing among alternative cost function specifications: an application to Italian multi-utilities," Economics Letters, Elsevier, vol. 82(3), pages 415-422, March.
  5. Parisio, Lucia & Bosco, Bruno, 2008. "Electricity prices and cross-border trade: Volume and strategy effects," Energy Economics, Elsevier, vol. 30(4), pages 1760-1775, July.
  6. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Economies of Scale and Scope in the Swiss Multi-Utilities Sector," CEPE Working paper series 07-59, CEPE Center for Energy Policy and Economics, ETH Zurich.
  7. Farsi, Mehdi & Filippini, Massimo, 2009. "An analysis of cost efficiency in Swiss multi-utilities," Energy Economics, Elsevier, vol. 31(2), pages 306-315, March.
  8. Rita Martins & Fernando Coelho & Adelino Fortunato, 2008. "Water Losses and Hydrographical Regions Influence on the Cost Structure of the Portuguese Water Industry," GEMF Working Papers 2008-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
  9. Ortega de Miguel, Enrique & Sanz Mulas, Andres, 2007. "A public sector multinational company: The case of Canal de Isabel II," Utilities Policy, Elsevier, vol. 15(2), pages 143-150, June.
  10. Fetz, Aurelio & Filippini, Massimo, 2010. "Economies of vertical integration in the Swiss electricity sector," Energy Economics, Elsevier, vol. 32(6), pages 1325-1330, November.
  11. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2006. "Economies of scale and scope in local public transportation," CEPE Working paper series 06-48, CEPE Center for Energy Policy and Economics, ETH Zurich.
  12. Rita Martins & Adelino Fortunato & Fernando Coelho, 2006. "Cost Structure of the Portuguese Water Industry: a Cubic Cost Function Application," GEMF Working Papers 2006-09, GEMF - Faculdade de Economia, Universidade de Coimbra.
  13. Marini G & Miraldo M, 2009. "The costs of new organisational and financial freedom: The case of English NHS trusts," Health, Econometrics and Data Group (HEDG) Working Papers 09/26, HEDG, c/o Department of Economics, University of York.
  14. Bottasso, Anna & Conti, Maurizio & Piacenz, Massimiliano & Vannoni, Davide, 2011. "The appropriateness of the poolability assumption for multiproduct technologies: Evidence from the English water and sewerage utilities," International Journal of Production Economics, Elsevier, vol. 130(1), pages 112-117, March.
  15. Michele Polo & Carlo Scarpa, 2003. "The liberalization of energy markets in Europe and Italy," Working Papers 230, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  16. Carlo Scarpa & Giacomo Calzolari, 2009. "On Regulation and Competition: Pros and Cons of a Diversified Monopolist," Working Papers 2009.55, Fondazione Eni Enrico Mattei.
  17. Walter, Matthias & Cullmann, Astrid & von Hirschhausen, Christian & Wand, Robert & Zschille, Michael, 2009. "Quo vadis efficiency analysis of water distribution? A comparative literature review," Utilities Policy, Elsevier, vol. 17(3-4), pages 225-232, September.
  18. Massimo Filippini & Martin Koller & Urs Trinkner, 2010. "Do opening hours and unobserved heterogeneity affect economies of scale and scope in postal outlets?," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 1007, USI Università della Svizzera italiana.
  19. Ferro, Gustavo & Lentini, Emilio & Mercadier, Augusto & Romero, Carlos A., 2010. "Retornos a escala en agua y saneamiento: estimaciones para América Latina
    [Returns to scale in water and sanitation: estimates for Latin Amercia]    ," MPRA Paper 20324, University Library of Munich, Germany, revised Jan 2010.

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