Economies of Scale and Scope in Network Industries: Lessons for the UK water and sewerage sectors

Michael Pollitt and Stephen J. Steer

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Many studies of the water and sewerage industries place significant importance on the benefits of economies of scale and scope and how these relate to vertically integrated firms. We have re-examined the early literature on scale and scope economies and find that these studies do not implicitly preclude non-integrated firms from fully utilising assets for multi-product activities; they can still reap scope economies through trading in the open market. Further, we demonstrate difficulties in separating these two types of economies when assessing firm performance. Trade-offs between governance and production costs are a key issue in determining the value of vertically integrated firms that may undergo divestiture. We discuss the present policy debate regarding the optimal structure of the water and sewerage markets in England and Wales in the light of this, and recommend avenues of research that will help determine the optimal policy.

Keywords: Economies of scale and scope; vertical separation; water and sewerage (search for similar items in EconPapers)
JEL-codes: L95 (search for similar items in EconPapers)
Date: 2011-08-17
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https://www.econ.cam.ac.uk/sites/default/files/pub ... pe-pdfs/cwpe1152.pdf

Related works:
Journal Article: Economies of scale and scope in network industries: Lessons for the UK water and sewerage sectors (2012)
Working Paper: Economies of Scale and Scope in Network Industries: Lessons for the UK water and sewerage sectors (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1152

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