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The Italian Automotive Industry and Economies of Scale

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  • Lila J. Truett
  • Dale B. Truett

Abstract

This article investigates scale economies in the Italian automobile industry as well as substitution possibilities between inputs and direct and cross-price elasticities of factor demand, utilizing a cost function with capital, labor, domestic, and imported intermediate goods inputs. Continuing European integration makes economies of scale an important issue. The study results are consistent with economies of scale in the Italian motor vehicle industry, a particularly interesting finding because the Italian automotive industry consists primarily of one firm, Fiat. The estimated direct price elasticities suggest that capital is most responsive to own price changes, and estimated cross elasticities imply that all inputs are substitutes. (JEL "D"2, "L"6, "O"1) Copyright 2003 Western Economic Association International.

Suggested Citation

  • Lila J. Truett & Dale B. Truett, 2003. "The Italian Automotive Industry and Economies of Scale," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 329-337, July.
  • Handle: RePEc:bla:coecpo:v:21:y:2003:i:3:p:329-337
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