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Calculation of Economies of Spatial Scope from Transport Cost Functions with Aggregate Output with an Application to the Airline Industry

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  • Leonardo J. Basso
  • Sergio R. Jara-Díaz
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    Abstract

    Transport network expansions have usually been analysed calculating returns to scale with variable network size (RTS), which has been shown to suffer from a number of shortcomings because, in the end, it attempts to capture as a scale property something that in fact is related with scope, namely the addition of new products when a transport network expands. In this paper the authors develop a method to calculate economies of spatial scope from transport cost functions with aggregate output, which is then illustrated using the results of a published study on airlines. We conclude that the method holds very well and that, coupled with the strict calculation of economies of scale (corrected returns to density), it permits a clear explanation of observed firm behaviour. © 2005 LSE and the University of Bath

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    Bibliographic Info

    Article provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy.

    Volume (Year): 39 (2005)
    Issue (Month): 1 (January)
    Pages: 25-52

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    Handle: RePEc:tpe:jtecpo:v:39:y:2005:i:1:p:25-52

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    Web page: http://www.bath.ac.uk/e-journals/jtep

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    Cited by:
    1. 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.
    2. Leonardo Basso & Sergio Jara-Díaz, 2006. "Distinguishing Multiproduct Economies of Scale from Economies of Density on a Fixed-Size Transport Network," Networks and Spatial Economics, Springer, vol. 6(2), pages 149-162, June.
    3. Gupta, Gautam & Goodchild, Anne & Hansen, Mark, 2011. "A competitive, charter air-service planning model for student athlete travel," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 128-149, January.
    4. de Borger, Bruno & Kerstens, Kristiaan & Staat, Matthias, 2008. "Transit costs and cost efficiency: Bootstrapping non-parametric frontiers," Research in Transportation Economics, Elsevier, vol. 23(1), pages 53-64, January.
    5. Romero-Hernandez, Manuel & Salgado, Hugo, 2005. "Economies of Density, Network Size and Spatial Scope in the European Airline Industry," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt9609m6hs, Institute of Transportation Studies, UC Berkeley.
    6. Severin Borenstein & Nancy L. Rose, 2007. "How Airline Markets Work...Or Do They? Regulatory Reform in the Airline Industry," NBER Working Papers 13452, National Bureau of Economic Research, Inc.
    7. Meunier, David & Quinet, Emile, 2010. "Tips and Pitfalls in PPP design," Research in Transportation Economics, Elsevier, vol. 30(1), pages 126-138.
    8. Hugo Salgado & Manuel Romero-Hernández, 2006. "Economies of Density, Network Size and Spatial Scope in the European Airline Industry," Working Papers 2006-13, FEDEA.
    9. Christian von Hirschhausen & Astrid Cullmann, 2008. "Next Stop: Restructuring?: A Nonparametric Efficiency Analysis of German Public Transport Companies," Discussion Papers of DIW Berlin 831, DIW Berlin, German Institute for Economic Research.
    10. Jara-Díaz, Sergio R. & Cortés, Cristián E. & Morales, Gabriela A., 2013. "Explaining changes and trends in the airline industry: Economies of density, multiproduct scale, and spatial scope," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 60(C), pages 13-26.

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