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Economies of scale in networks

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  • Kraus, Marvin

Abstract

A network's capacity can typically be increased in a variety of ways. For example, in a highway network, existing roads can be made wider or new roads added. This paper is concerned with the determination of the degree of local economies of scale in the cost function for the outputs of a congestible network when there are multiple margins for making adjustments to capacity. The main result is that under the provision of a cost-minimizing network--one for which the sum of user and capacity costs for the network's outputs is at a minimum--the degree of local economies of scale in the cost function for the network's outputs is the same along all margins for adjusting capacity. This includes what routes to establish.

Suggested Citation

  • Kraus, Marvin, 2008. "Economies of scale in networks," Journal of Urban Economics, Elsevier, vol. 64(1), pages 171-177, July.
    • Handle: RePEc:eee:juecon:v:64:y:2008:i:1:p:171-177
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    References listed on IDEAS

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    1. Small, Kenneth A., 1999. "Economies of scale and self-financing rules with non-competitive factor markets," Journal of Public Economics, Elsevier, vol. 74(3), pages 431-450, December.
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    2. Leonardo J. Basso & Sergio R. Jara-Díaz & William G. Waters, 2011. "Cost Functions for Transport Firms," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 12, Edward Elgar Publishing.
    3. Fielbaum, Andrés & Jara-Diaz, Sergio & Gschwender, Antonio, 2021. "Lines spacing and scale economies in the strategic design of transit systems in a parametric city," Research in Transportation Economics, Elsevier, vol. 90(C).
    4. 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.
    5. Abrate, Graziano & Piacenza, Massimiliano & Vannoni, Davide, 2009. "The impact of Integrated Tariff Systems on public transport demand: Evidence from Italy," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 120-127, March.
    6. 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.

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