A Note on Scale Economies in Transport

Abstract

During a period of increasing deregulation, U.S. transport industries have experienced unprecedented reorganization and consolidation, resulting in fewer but larger firms in the industry. Whether these firms' pursuit to become larger is a manifestation of the existence of scale economies, or evidence that the industry is solely motivated to gain market power, has very different implications for industrial policy. Most empirical research in this area seems to indicate that constant returns to scale prevail in the industry when returns to scale are measured using cost elasticities of outputs and network size. However, recent developments in the literature point out deficiencies in the traditional measure of returns to scale. This article serves to illustrate the empirical links between operating characteristics such as load factor, stage length, network size and scale of outputs, following a theoretically consistent specification.

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