The objective of this paper is to discuss the development from the concept of economies
of scale to the concept of economies of network integrity. Furthermore it explores how
in this context user costs are linked in. Empirical evidence about the implications of
those concepts for the understanding of the market structure in local bus services,
aviation, trucking services, railways and ocean liner shipping is analysed. Finally lessons
for governments involved with privatisation processes in transport are outlined.
Table of Contents
1. INTRODUCTION
2. MARKET STRUCTURE AND NATURAL MONOPOLY
3. FROM ECONOMIES OF SCALE TO SERVICE INTEGRITY
3.1 Economies of scale
2.2. Economies of scope
2.3. Economies of service integrity
3.2 From input costs to user costs
4. EMPIRICAL EVIDENCE FROM TRANSPORT SERVICE INDUSTRIES
4.1 Local bus operations
4.2. Airline operations
4.3. Trucking operations
4.4. Rail operations
4.5. Ocean liner shipping
5. LESSONS FOR GOVERNMENTS
6. CONCLUSIONS
Objective and Key Themes
This paper examines the transition from traditional concepts of economies of scale to the concept of economies of network integrity within the transport sector. The research explores how these economic factors influence market structure and natural monopoly definitions, particularly by incorporating user costs into the analysis of transport service privatization.
- Development of economic theories from economies of scale to service integrity.
- The role of user costs in evaluating transport market efficiency.
- Empirical case studies across aviation, trucking, bus, rail, and shipping industries.
- Strategic policy implications for government privatization and deregulation processes.
Excerpt from the Book
3.1 Economies of scale
In the strict economic definition economies of scale exist were the average costs of output expand and this output is homogeneous. Oum and Zhang (1997) state that empirical studies of the transport industry could not provide enough evidence for the presence of scale economies in the transport sectors analysed, as there were generally constant returns of scale observed. These results on economies of scale seem to indicate that any attempt to expand the output without significantly altering the nature of the network or the output mix would not improve scale efficiency (Bailey and Friedlaender 1982, Oum and Zhang 1997, Gillen et al 1985).
The resulting difficulty to explain the expansive behaviour of transport companies led to re-examine the economic methods for measuring economies of scale. A first step of improvement was to distinguish between returns to density and returns to scale (Caves et al 1984).
But even when taking output and network size into account, constant returns to scale seem to prevail in the transport industry. This is a consequence of traditional measures overlooking the role of operating characteristics, other than network size, which have played a major role in determining transport firms’ cost structures (Oum and Zhang 1997).
Summary of Chapters
1. INTRODUCTION: Outlines the structural shifts in transport industries following deregulation and introduces the core objective of analyzing economies of scale and service integrity.
2. MARKET STRUCTURE AND NATURAL MONOPOLY: Defines the economic theoretical framework for competitive markets, oligopolies, and natural monopolies within the context of transport regulation.
3. FROM ECONOMIES OF SCALE TO SERVICE INTEGRITY: Discusses the evolution of cost-saving concepts, specifically differentiating between scale, scope, and service integrity, while introducing the significance of user costs.
4. EMPIRICAL EVIDENCE FROM TRANSPORT SERVICE INDUSTRIES: Analyzes the practical application of the aforementioned economic theories across five distinct transport sectors: bus, air, trucking, rail, and shipping.
5. LESSONS FOR GOVERNMENTS: Provides strategic recommendations for policy-makers regarding privatization, focusing on the trade-offs between deregulation and competitive tendering.
6. CONCLUSIONS: Summarizes the current research gaps and calls for future study into the impacts of service integrity on different segments of transport demand.
Keywords
Economies of scale, economies of scope, economies of service integrity, transport privatization, natural monopoly, market structure, user costs, deregulation, competitive tendering, network integrity, aviation, trucking, bus industry, rail transport, shipping conferences.
Frequently Asked Questions
What is the primary focus of this paper?
The paper focuses on how the economic definition of market efficiency has evolved from simple economies of scale to more complex concepts like economies of network integrity, and how this affects the privatization of transport services.
What are the central themes discussed?
Central themes include the nature of natural monopolies in transport, the importance of user costs, and the practical challenges of deregulating industries like bus, air, and rail services.
What is the main objective of the research?
The primary goal is to evaluate the implications of scale and network integrity economies on market structure to provide better guidelines for governments engaged in transport sector privatization.
Which scientific method is applied?
The author uses a literature-based analysis of empirical economic evidence, comparing findings from various studies on transport cost functions and industrial organization.
What does the main body cover?
The main body examines empirical evidence across specific transport industries, detailing why traditional scale-based metrics often fail to capture the full economic picture, particularly when accounting for service quality.
Which keywords define this work?
Key terms include economies of scale, natural monopoly, network integrity, transport privatization, and user costs.
Why are user costs considered a significant factor in this study?
User costs—such as waiting times and service frequency—are often excluded from traditional operator-cost models, yet they constitute a major portion of total costs in transport services, fundamentally changing the assessment of market efficiency.
What lesson does the British bus industry experience offer?
The study suggests that while deregulation aims for competition, regulated natural monopolies or competitive tendering regimes in the British bus industry often achieved more efficient outcomes for consumers than full deregulation.
- Arbeit zitieren
- Paul Freudensprung (Autor:in), 1998, The Implications of Economies of Scale, Scope and Network Integrity on the Privatisation of Transport Services, München, GRIN Verlag, https://www.grin.com/document/186331
