IDEAS home Printed from https://ideas.repec.org/p/tur/wpapnw/056.html
   My bibliography  Save this paper

Scale and (Quasi) Scope Economies in Airport Technology: an Application to UK Airports

Author

Listed:
  • Anna Bottasso

    (Department of Economics, University of Genova, Italy)

  • Maurizio Conti

    (Department of Economics, University of Genova, Italy)

  • Davide Vannoni

    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

Abstract

In this study we consider a sample of the largest UK airports in order to estimate, for the first time for this sector, a multiproduct cost function using a flexible technology that nests most of the specifications commonly employed in the empirical literature. Another novelty of this work is that we provide estimates of (quasi) scope economies for the airport industry. Our main results suggest the existence of (quasi) scope economies that tend to decline with the size of the airport. The finding on quasi scope economies coupled with a set of cost complementarity tests suggest that cost savings mainly arise from the joint provision of services for national and international passengers and, to a lesser extent, to the addition of cargo transport activities; in turn, the production of non aeronautical services seems to be characterized by anti-cost complementarities. Finally, we confirm previous findings in the literature that global economies of scale are exhausted at about five million passengers in the case of the UK airport industry.

Suggested Citation

  • Anna Bottasso & Maurizio Conti & Davide Vannoni, 2018. "Scale and (Quasi) Scope Economies in Airport Technology: an Application to UK Airports," Working papers 056, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    • Handle: RePEc:tur:wpapnw:056
    as

    Download full text from publisher

    File URL: http://www.bemservizi.unito.it/repec/tur/wpapnw/m56.pdf
    File Function: First version, 2018
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. McKenzie, David J & Small, John P, 1997. "Econometric Cost Structure Estimates for Cellular Telephony in the United States," Journal of Regulatory Economics, Springer, vol. 12(2), pages 147-157, September.
    2. Pulley, Lawrence B & Humphrey, David B, 1993. "The Role of Fixed Costs and Cost Complementarities in Determining Scope Economies and the Cost of Narrow Banking Proposals," The Journal of Business, University of Chicago Press, vol. 66(3), pages 437-462, July.
    3. Adler, Nicole & Liebert, Vanessa, 2014. "Joint impact of competition, ownership form and economic regulation on airport performance and pricing," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 92-109.
    4. Anna Bottasso & Maurizio Conti, 2017. "The Cost Structure of the Airport Industry: Methodological Issues and Empirical Evidence☆," Advances in Airline Economics, in: The Economics of Airport Operations, volume 6, pages 181-212, Emerald Group Publishing Limited.
    5. Stephen Gibbons & Wenjie Wu, 2017. "Airports, Market Access and Local Economic Performance: Evidence from China," SERC Discussion Papers 0211, Centre for Economic Performance, LSE.
    6. Elisabetta Ottoz & Marina Di Giacomo, 2012. "Diversification strategies and scope economies: evidence from a sample of Italian regional bus transport providers," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2867-2880, August.
    7. Pulley, Lawrence B & Braunstein, Yale M, 1992. "A Composite Cost Function for Multiproduct Firms with an Application to Economies of Scope in Banking," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 221-230, May.
    8. Piacenza, Massimiliano & Vannoni, Davide, 2004. "Choosing among alternative cost function specifications: an application to Italian multi-utilities," Economics Letters, Elsevier, vol. 82(3), pages 415-422, March.
    9. Wing Chow, Clement Kong & Fung, Michael Ka Yiu, 2009. "Efficiencies and scope economies of Chinese airports in moving passengers and cargo," Journal of Air Transport Management, Elsevier, vol. 15(6), pages 324-329.
    10. Scotti, Davide & Malighetti, Paolo & Martini, Gianmaria & Volta, Nicola, 2012. "The impact of airport competition on technical efficiency: A stochastic frontier analysis applied to Italian airport," Journal of Air Transport Management, Elsevier, vol. 22(C), pages 9-15.
    11. Bailey, Elizabeth E & Friedlaender, Ann F, 1982. "Market Structure and Multiproduct Industries," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 1024-1048, September.
    12. Sergio Jara-Díaz & Beatriz Tovar De La Fé & Lourdes Trujillo, 2005. "Multioutput analysis of cargo handling firms: An application to a Spanish port," Transportation, Springer, vol. 32(3), pages 275-291, May.
    13. Stephen Gibbons & Wenjie Wu, 2017. "Airports and economic performance in China," CentrePiece - The magazine for economic performance 509, Centre for Economic Performance, LSE.
    14. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    15. D’Alfonso, Tiziana & Daraio, Cinzia & Nastasi, Alberto, 2015. "Competition and efficiency in the Italian airport system: new insights from a conditional nonparametric frontier analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 80(C), pages 20-38.
    16. Martini, Gianmaria & Manello, Alessandro & Scotti, Davide, 2013. "The influence of fleet mix, ownership and LCCs on airports’ technical/environmental efficiency," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 50(C), pages 37-52.
    17. Zhang, Anming & Czerny, Achim I., 2012. "Airports and airlines economics and policy: An interpretive review of recent research," Economics of Transportation, Elsevier, vol. 1(1), pages 15-34.
    18. Michael Delgado & Christopher Parmeter & Valentina Hartarska & Roy Mersland, 2015. "Should all microfinance institutions mobilize microsavings? Evidence from economies of scope," Empirical Economics, Springer, vol. 48(1), pages 193-225, February.
    19. McElroy, Marjorie B., 1977. "Goodness of fit for seemingly unrelated regressions : Glahn's R2y.x and Hooper's r2," Journal of Econometrics, Elsevier, vol. 6(3), pages 381-387, November.
    20. Xavier Fageda, 2017. "International Air Travel And Fdi Flows: Evidence From Barcelona," Journal of Regional Science, Wiley Blackwell, vol. 57(5), pages 858-883, November.
    21. Volodymyr Bilotkach, 2015. "Are airports engines of economic development? A dynamic panel data approach," Urban Studies, Urban Studies Journal Limited, vol. 52(9), pages 1577-1593, July.
    22. Graziano Abrate & Fabrizio Erbetta & Giovanni Fraquelli & Davide Vannoni, 2014. "The Costs of Disposal and Recycling: An Application to Italian Municipal Solid Waste Services," Regional Studies, Taylor & Francis Journals, vol. 48(5), pages 896-909, May.
    23. Ha, Hun-Koo & Wan, Yulai & Yoshida, Yuichiro & Zhang, Anming, 2013. "Airline market structure and airport efficiency: Evidence from major Northeast Asian airports," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 32-42.
    24. Blonigen, Bruce A. & Cristea, Anca D., 2015. "Air service and urban growth: Evidence from a quasi-natural policy experiment," Journal of Urban Economics, Elsevier, vol. 86(C), pages 128-146.
    25. Anna Bottasso & Maurizio Conti & Claudio Piga, 2013. "Low-cost carriers and airports' performance: empirical evidence from a panel of UK airports," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(3), pages 745-769, June.
    26. Tiziana D’Alfonso & Valentina Bracaglia, 2017. "Two-Sidedness and Welfare Neutrality in Airport Concessions," Advances in Airline Economics, in: The Economics of Airport Operations, volume 6, pages 49-68, Emerald Group Publishing Limited.
    27. Patrick McCarthy, 2016. "Multi-Product Cost Analysis of US Airports," Advances in Airline Economics, in: Airline Efficiency, volume 5, pages 243-281, Emerald Group Publishing Limited.
    28. Marina Di Giacomo & Elisabetta Ottoz, 2010. "The Relevance of Scale and Scope Economies in the Provision of Urban and Intercity Bus Transport," Journal of Transport Economics and Policy, University of Bath, vol. 44(2), pages 161-187, May.
    29. McKillop, Donal G. & Glass, J. Colin & Morikawa, Yukio, 1996. "The composite cost function and efficiency in giant Japanese banks," Journal of Banking & Finance, Elsevier, vol. 20(10), pages 1651-1671, December.
    30. Voltes-Dorta, Augusto & Lei, Zheng, 2013. "The impact of airline differentiation on marginal cost pricing at UK airports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 55(C), pages 72-88.
    31. Morrison, William G., 2009. "Real estate, factory outlets and bricks: A note on non-aeronautical activities at commercial airports," Journal of Air Transport Management, Elsevier, vol. 15(3), pages 112-115.
    32. Tiziana D'Alfonso & Changmin Jiang & Yulai Wan, 2013. "Airport Pricing, Concession Revenues and Passenger Types," Journal of Transport Economics and Policy, University of Bath, vol. 47(1), pages 71-89, January.
    33. Abrate, Graziano & Erbetta, Fabrizio & Fraquelli, Giovanni & Vannoni, Davide, 2016. "Bet big on doubles, bet smaller on triples. Exploring scope economies in multi-service passenger transport companies," Transport Policy, Elsevier, vol. 52(C), pages 81-88.
    34. Vanessa Liebert & Hans-Martin Niemeier, 2013. "A Survey of Empirical Research on the Productivity and Efficiency Measurement of Airports," Journal of Transport Economics and Policy, University of Bath, vol. 47(2), pages 157-189, May.
    35. Harry Bloch & Gary Madden & Scott Savage, 2001. "Economies of Scale and Scope in Australian Telecommunications," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(2), pages 219-227, March.
    36. Martín, Juan Carlos & Voltes-Dorta, Augusto, 2011. "The econometric estimation of airports' cost function," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 112-127, January.
    37. Caves, Douglas W & Christensen, Laurits R & Tretheway, Michael W, 1980. "Flexible Cost Functions for Multiproduct Firms," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 477-481, August.
    38. Yan, Jia & Oum, Tae Hoon, 2014. "The effect of government corruption on the efficiency of US commercial airports," Journal of Urban Economics, Elsevier, vol. 80(C), pages 119-132.
    39. Bracaglia, Valentina & D׳Alfonso, Tiziana & Nastasi, Alberto, 2014. "Competition between multiproduct airports," Economics of Transportation, Elsevier, vol. 3(4), pages 270-281.
    40. Anna Bottasso & Martina Bruno & Maurizio Conti & Claudio Piga, 2017. "Competition, vertical relationship and countervailing power in the UK airport industry," Journal of Regulatory Economics, Springer, vol. 52(1), pages 37-62, August.
    41. Abrate, Graziano & Erbetta, Fabrizio, 2010. "Efficiency and patterns of service mix in airport companies: An input distance function approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(5), pages 693-708, September.
    42. Núñez-Sánchez, Ramón & Jara-Díaz, Sergio & Coto-Millán, Pablo, 2011. "Public regulation and passengers importance in port infrastructure costs," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(7), pages 653-666, August.
    43. 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.
    44. Anna Bottasso & Maurizio Conti, 2012. "The Cost Structure of the UK Airport Industry," Journal of Transport Economics and Policy, University of Bath, vol. 46(3), pages 313-332, September.
    45. Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2004. "Scope and scale economies in multi-utilities: evidence from gas, water and electricity combinations," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2045-2057.
    46. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kao, Chiang & Pang, Rui-Zhi & Liu, Shiang-Tai & Bai, Xue-Jie, 2021. "Optimal expansion paths for hospitals of different types: Viewpoint of scope economies and evidence from Chinese hospitals," European Journal of Operational Research, Elsevier, vol. 289(2), pages 628-638.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elisabetta Ottoz & Marina Di Giacomo, 2012. "Diversification strategies and scope economies: evidence from a sample of Italian regional bus transport providers," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2867-2880, August.
    2. D’Alfonso, Tiziana & Daraio, Cinzia & Nastasi, Alberto, 2015. "Competition and efficiency in the Italian airport system: new insights from a conditional nonparametric frontier analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 80(C), pages 20-38.
    3. Piacenza, Massimiliano & Vannoni, Davide, 2004. "Choosing among alternative cost function specifications: an application to Italian multi-utilities," Economics Letters, Elsevier, vol. 82(3), pages 415-422, March.
    4. Graziano Abrate & Fabrizio Erbetta & Giovanni Fraquelli & Davide Vannoni, 2014. "Cost function estimation of multi-service firms. Evidence from the passenger transport industry," Carlo Alberto Notebooks 380, Collegio Carlo Alberto.
    5. Martini, Gianmaria & Scotti, Davide & Viola, Domenico & Vittadini, Giorgio, 2020. "Persistent and temporary inefficiency in airport cost function: An application to Italy," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 999-1019.
    6. Hidalgo-Gallego, Soraya & Mateo-Mantecón, Ingrid, 2019. "Effect of concentration in airline market on Spanish airport technical efficiency," Journal of Air Transport Management, Elsevier, vol. 76(C), pages 56-66.
    7. Conti, Maurizio & Ferrara, Antonella Rita & Ferraresi, Massimiliano, 2019. "Did the EU Airport Charges Directive lead to lower aeronautical charges? Empirical evidence from a diff-in-diff research design," Economics of Transportation, Elsevier, vol. 17(C), pages 24-39.
    8. Liu, Shuli & Wan, Yulai & Zhang, Anming, 2021. "Does high-speed rail development affect airport productivity? Evidence from China and Japan," Transport Policy, Elsevier, vol. 110(C), pages 1-15.
    9. Abrate, Graziano & Erbetta, Fabrizio & Fraquelli, Giovanni & Vannoni, Davide, 2016. "Bet big on doubles, bet smaller on triples. Exploring scope economies in multi-service passenger transport companies," Transport Policy, Elsevier, vol. 52(C), pages 81-88.
    10. Mancuso, Paolo, 2012. "Regulation and efficiency in transition: The case of telecommunications in Italy," International Journal of Production Economics, Elsevier, vol. 135(2), pages 762-770.
    11. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Economies of Scale and Scope in the Swiss Multi-Utilities Sector," CEPE Working paper series 07-59, CEPE Center for Energy Policy and Economics, ETH Zurich.
    12. Fabio Carlucci & Andrea Cirà & Paolo Coccorese, 2018. "Measuring and Explaining Airport Efficiency and Sustainability: Evidence from Italy," Sustainability, MDPI, vol. 10(2), pages 1-17, February.
    13. lo Storto, Corrado, 2018. "Ownership structure and the technical, cost, and revenue efficiency of Italian airports," Utilities Policy, Elsevier, vol. 50(C), pages 175-193.
    14. Karanki, Fecri & Lim, Siew Hoon, 2021. "Airport use agreements and cost efficiency of U.S. airports," Transport Policy, Elsevier, vol. 114(C), pages 68-77.
    15. Anna Bottasso & Martina Bruno & Maurizio Conti & Claudio Piga, 2017. "Competition, vertical relationship and countervailing power in the UK airport industry," Journal of Regulatory Economics, Springer, vol. 52(1), pages 37-62, August.
    16. Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2004. "Scope and scale economies in multi-utilities: evidence from gas, water and electricity combinations," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2045-2057.
    17. Kutlu, Levent & McCarthy, Patrick, 2016. "US airport ownership, efficiency, and heterogeneity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 117-132.
    18. Bergantino, Angela Stefania & Intini, Mario & Volta, Nicola, 2021. "The spatial dimension of competition among airports at the worldwide level: a spatial stochastic frontier analysis," European Journal of Operational Research, Elsevier, vol. 295(1), pages 118-130.
    19. Weekx, Simon & Buyle, Sven, 2023. "The effect of airline dominance on airport performance: Empirical evidence from medium-sized European airports," Journal of Air Transport Management, Elsevier, vol. 107(C).
    20. Fetz, Aurelio & Filippini, Massimo, 2010. "Economies of vertical integration in the Swiss electricity sector," Energy Economics, Elsevier, vol. 32(6), pages 1325-1330, November.

    More about this item

    Keywords

    Scope and Scale Economies; Composite Cost Function; Airports.;
    All these keywords.

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tur:wpapnw:056. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daniele Pennesi (email available below). General contact details of provider: https://edirc.repec.org/data/dstorit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.