Economies of Scale in Production versus Diseconomies in Transportation: On Structural Change in the German Dairy Industry
AbstractThis paper analyzes the structural change in the German dairy sector using a sector-wide optimization model. In particular, the model includes a spatially explicit representation of dairy processing farms and dairy farming regions to account for the trade-off between economies of scale in dairy production and diseconomies of scale in transportation. We simulate cost-optimal sectoral structures for different time horizons and various transport cost levels. The results demonstrate that the model is able to explain the trend towards fewer but larger dairies as currently observed in reality and indicate, ceteris paribus, a continuation of this trend. However, if the importance of transport costs increases relative to other costs in dairy production this trend might level off. The structural impacts found differ markedly by region.
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Bibliographic InfoPaper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep0209.
Length: 31 pages
Date of creation: Nov 2009
Date of revision:
Capacitated facility location problem; structural change; transportation; simulation;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
- R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other
This paper has been announced in the following NEP Reports:
- NEP-AGR-2009-11-14 (Agricultural Economics)
- NEP-ALL-2009-11-14 (All new papers)
- NEP-COM-2009-11-14 (Industrial Competition)
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