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Economies of Scale and Scope in Network Industries: Lessons for the UK water and sewerage sectors

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  • Pollitt, M. J.
  • Steer, S. J.

Abstract

Many 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.

Suggested Citation

  • 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.
    • Handle: RePEc:cam:camdae:1152
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    3. Byoung-Kuk Ju & Seung-Hoon Yoo & Chulwoo Baek, 2022. "Economies of Scale in City Gas Sector in Seoul, South Korea: Evidence from an Empirical Investigation," Sustainability, MDPI, vol. 14(9), pages 1-14, April.
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    8. Agustin Leon-Moreta & Vittoria Totaro, 2023. "Interlocal interactions, municipal boundaries and water and wastewater expenditure in city-regions," Urban Studies, Urban Studies Journal Limited, vol. 60(1), pages 46-66, January.
    9. Anna Bottasso & Maurizio Conti, 2021. "Economie di integrazione verticale ed economie di scopo nel settore idrico e fognario: alcune considerazioni alla luce dell?evidenza empirica internazionale," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2021(3), pages 89-128.
    10. Bennich, Amelie & Engwall, Mats & Nilsson, David, 2023. "Operating in the shadowland: Why water utilities fail to manage decaying infrastructure," Utilities Policy, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    Economies of scale and scope; vertical separation; water and sewerage;
    All these keywords.

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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