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Economies of Scale in Production versus Diseconomies in Transportation: On Structural Change in the German Dairy Industry

Author

Listed:
  • Ole Boysen

    (Department of Economics, Trinity College Dublin)

  • Carsten Schr der

    (Department of Economics, University of Kiel)

Abstract

This 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.

Suggested Citation

  • Ole Boysen & Carsten Schr der, 2009. "Economies of Scale in Production versus Diseconomies in Transportation: On Structural Change in the German Dairy Industry," Trinity Economics Papers tep0209, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep0209
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    File URL: http://www.tcd.ie/Economics/TEP/2009/TEP0209.pdf
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    More about this item

    Keywords

    Capacitated facility location problem; structural change; transportation; simulation;
    All these keywords.

    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
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • 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

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