Calculation of Economies of Spatial Scope from Transport Cost Functions with Aggregate Output with an Application to the Airline Industry

Leonardo J. Basso and Sergio Jara-Diaz ()

Journal of Transport Economics and Policy, 2005, vol. 39, issue 1, 25-52

Abstract: Transport network expansions have usually been analysed calculating returns to scale with variable network size (RTS), which has been shown to suffer from a number of shortcomings because, in the end, it attempts to capture as a scale property something that in fact is related with scope, namely the addition of new products when a transport network expands. In this paper the authors develop a method to calculate economies of spatial scope from transport cost functions with aggregate output, which is then illustrated using the results of a published study on airlines. We conclude that the method holds very well and that, coupled with the strict calculation of economies of scale (corrected returns to density), it permits a clear explanation of observed firm behaviour. © 2005 LSE and the University of Bath

Date: 2005
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