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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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Author Info
Leonardo J. Basso
Sergio R. Jara-Díaz
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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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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  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!]
  3. Hugo Salgado & Manuel Romero-Hernández, 2006. "Economies of Density, Network Size and Spatial Scope in the European Airline Industry," Working Papers 2006-13, FEDEA. [Downloadable!]
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