Is big better? On scale and scope economies in the Portuguese water sector

The ‘big is better’ idea has recently been challenged in network industries. Scale economies are considered finite so that for the individual utility an optimal scale of operations arises. A similar observation yields for scope economies as joint production is not predicted univocally anymore. In the water sector, scale economies and joint production are preferred. Nevertheless, several countries are restructuring the sector in order to improve the scale and scope of operations. This article intends to provide some insights into this matter. We analyze the Portuguese water market structure using non-parametric techniques with data from the year 2005. After surveying the literature on scale and scope economies, we discuss the peculiarities of the Portuguese water sector. The paper confirms the natural monopoly features. Although scope economies are absent, it highlights scale economies. The optimal scale of the utilities is located between 160,000 and 180,000 inhabitants. As such, the Portuguese water sector optimally counts 60 water utilities.     

Economies of scope and scale in the Norwegian electricity industry

An important issue for multi-product firms to consider is economies of scope, i.e., whether there is any benefit from producing two or more products, or whether specializing in producing only one product would be less costly. We examined the economies of scope for Norwegian electricity companies because policy makers have decided to force companies that both generates and distributes electricity to split their operations into two companies, one engaged in generation only and the other in distribution only. We set out to test the validity of the policy makers decision on unbundling generation and distribution. Using data from Norwegian electricity companies for the period 2004–2014, we found evidence of economies of scope, meaning that policy makers’ insistence on separating generation and distribution companies will have increased costs. We also found evidence of economies of scale, meaning that there are cost savings in expanding outputs. Our findings provide important information to consider in future policy decisions in the Norwegian electricity industry, probably with implications for other countries.     

The problem of market size for Canadian cable television regulation

The policy of the Canadian radio television and telecommunications commission of awarding an exclusive right to provide cable television (CATV) service within a given licensed service area (LSA) rests partly on the presumption that CATV costs reflect economies of scale that are large relative to market size. Cost estimates from crosssections of CATV operations from 1985–1991 show increasing returns to scale and suggest that many LSAs were too small to capture these economies. The results also indicate that economies of scale for basic service declined over the 1980s and that the ‘natural monopoly’ characteristics of CATV may be eroded by further technological and regulatory changes.     

自然垄断的"三位一体"理论

传统自然垄断理论是建立在规模经济、范围经济和成本劣加性基础之上的，本文认为社会总价值或总效用和社会净收益的优加性是比成本劣加性更好地定义自然垄断的概念，并在对规模经济、范围经济和网络经济重新定义的基础上，从规模经济、范围经济、网络经济“三位一体”角度重新解释了自然垄断概念，提出了自然垄断的“三位一体”理论，为自然垄断产业规制及其改革奠定理论和实证基础。     

The Italian Automotive Industry and Economies of Scale

This article investigates scale economies in the Italian automobile industry as well as substitution possibilities between inputs and direct and cross-price elasticities of factor demand, utilizing a cost function with capital, labor, domestic, and imported intermediate goods inputs. Continuing European integration makes economies of scale an important issue. The study results are consistent with economies of scale in the Italian motor vehicle industry, a particularly interesting finding because the Italian automotive industry consists primarily of one firm, Fiat. The estimated direct price elasticities suggest that capital is most responsive to own price changes, and estimated cross elasticities imply that all inputs are substitutes. (JEL D 2, L 6, O 1)     

Serving SMEs Via the Stock Exchange: Historical Lessons from the Lisbon Stock Exchange

The development of large companies in the western world — many being huge multinational corporations — and the sheer size of their financial needs has given an added importance to tradability, a fact that can clearly be gauged by the recently discovered “high frequency trading” (HFT) operations which are only possible with large issues. Also contributing to the importance of tradability is the recent demutualization of most exchanges during the 1990s, which turned them into for-profit organizations. In fact, large issues of shares or bonds allow economies of scale, and generate experience in listing practices and trading operations, thereby enhancing the profitability of those commercially oriented stock exchanges. Thus, small and medium enterprises (SMEs) are now much less attractive to these organizations, as compared to large enterprises (LEs), due to their inherent lack of liquidity and to the economies of scale. We discuss the barriers before SMEs, which require special accommodations to be able to raise stable funds for their development.     

Estimating Market Power in the South African Banking Sector

Indicators of market power can be ambiguous because cost economies associated with scale and not market imperfections may influence results. This article illustrates that without direct measures of concentration, estimates of costs, scale economies and profitability can be used to identify market power in banking. Secondly, via this method, econometric estimates provide meaningful evidence of market power in the South African banking sector over the study sample period (1979–1998). A reasonable conclusion is that while industrial structure is important, careful consideration needs to be given to cost economies and profitability when assessing market power. In addition, there is a need to consider appropriate policy to reduce market power in banking in South Africa.     

Cost structure,productivity and efficiency of the Italian public higher education industry 2001–2011

In this paper, I analyze the cost structure of the Italian higher education system for the decade between 2001 and 2011, by means of a stochastic translog cost function. I suggest that the judgment about the optimal configuration of the sector is strongly dependent upon the policy priorities set by decision makers. When assuming that the universities’ output is the number of students, scale economies are exhausted, and marginal costs are relatively low; when considering graduates as outputs instead, there is opportunity for increasing the scale of operations. Inefficiency affects production in a sensible manner, especially when assuming that the target output is the number of graduates. Moreover, efficiency contributes to explaining a relevant portion of the productivity increases in the period. No significant scope economies between teaching and research emerge, suggesting that a higher degree of universities’ specialization can be a direction for improving the sector’s efficiency and productivity.     

Production and costs in the South African motor vehicle industry

This study investigates the existence of economies of scale in the South African motor vehicle industry as well as the substitution possibilities between input pairs and the direct and cross-price elasticities of demand for the various inputs. Because of data limitations, a translog cost function was estimated for only a three input model corresponding to a homogeneous production function involving capital, labour and intermediate goods. The issue of the existence of economies of scale in the South African motor vehicle industry is a particularly important one because South Africa once again is a member of GATT and a full participant in the international trade arena. The null hypothesis of constant returns to scale was rejected at the 0.5% level of significance. Thus, the results of this model are certainly consistent with economies of scale in the South African motor vehicle industry. The estimated direct price elasticities were consistent with the hypothesis that, during the past two decades, capital was the productive factor with the most elastic demand, and the estimated cross-elasticities between input pairs generally supported the hypothesis that all inputs are substitutes.     

SCALE ECONOMIES IN MULTIPRODUCT FIRMS

As normally employed, multioutput cost functions impose a bias against a finding of economies of scale, because a firm's optimal expansion path generally does not entail constant proportions over the various outputs. This bias can be overcome using a cost function defined in terms of a scalar aggregate output. An empirical example using New York commercial banks bears out the argument. As a sidelight, it is also argued that the traditional concept of scale economies is appropriate for policy purposes even when it conflicts with the more recently developed condition of natural monopoly (subadditivity of the cost function).     

Do Geographic Scale Economies Explain Disturbances to Heckscher–Ohlin Trade?

This paper examines whether "geographic scale economies" explain the trade that remains unexplained by the Heckscher–Ohlin model. The paper develops a theoretical specification that integrates geographic scale economies into the Heckscher–Ohlin model, and develops a statistical method for detecting geographic scale economies in the distributional features of a disturbance term. The units of analysis are US states. The findings reveal that empirical support for the Heckscher–Ohlin theory is improved by accounting for geographic scale economies within states; geographic scale economies do not generate differences in Rybczynski effects across states; and the scope of geographic scale economies is contained within states.     

Economics of scale and scope in multiproduct firms: evidence from US railroads

Recently, there has been a surge of interest in analysing scale economies in US railroad firms. The analysis of scale economies in existing studies is, however, limited in view of recent advances in the theory of the multiproduct firm. In this paper, the previous work is extended to address the issue of scale and scope economies in multiproduct firms. The findings show that US railroads experience mild overall economies of scale, but rather marked product-specific economies of scale with respect to both freight and passenger services. However, there appear to be diseconomies of scope associated with the joint production of the two services. Based on these results, this study indicates that US railroad firms would have no tendency to behave as a natural monopoly in the absence of regulation.     

On the Limits to the Long-Period Method in Classical Economics: A note

On a first reading of Theory of Production, Kurz & Salvadori (1995) appear to confine the empirical domain of the long-period models of the classical theory of value and distribution to stationary economies with non-constant returns to scale and to growing economies with constant returns to scale. Such a reading is shown to be untenable since it merges the two levels of exploring the extension of a model and of testing a theoretical hypothesis. Conversely, the way Kurz & Salvadori tackle the problems of price dynamics and returns to scale in growing economies is shown to be compatible with what appears to be Sraffa's (implicit) strategy of research.     

Economies of scale for broadband in rural United States

Empirical cost models for wireline broadband circuits are used to test whether economies of scale exist in rural areas and whether new Ethernet technology lowers the unit cost of broadband transportation. Previous studies have shown small or nonexistent economies of scale for wireless technology. Results from earlier studies also demonstrated economies of scale for voice-only wireline networks which diminished with network size and were fully exploited for large networks. To our knowledge presence of economies of scale for wireline broadband networks has not been tested, certainly not in rural United States. We use data supplied by more than 500 rural local exchange carriers and find economies of scale for small rural wireline broadband providers. Market size limitations appear to prevent rural telephone companies from fully exploiting unit cost savings. The data also show increasing capacity over existing broadband connections is subject to substantial economies of scale, but such economies diminish quickly as bandwidth capacity increases. The data do not support the hypothesis that Ethernet technology reduces broadband transmission cost.     

Productivity drivers of infrastructure companies: Network industries utilizing economies of scale in the digital era

What drives the productivity dynamics of infrastructure companies? Using a panel of firms in 14 countries, we study total factor productivity (TFP) enhancers of utility and network services companies. We find that moving TFP closer to the technological frontier drives productivity growth at higher speeds in Asian countries than in European countries. We also find that financial leverage exerts a positive effect on TFP growth for larger infrastructure firms and that more financially developed countries utilize economies of scale through better use of financial resources. Large utility and transportation companies display a higher rate of TFP growth, indicating that a competition policy to encourage M&As would be prudent for the utility/transportation sectors to maximize economies of scale. In contrast, we find diseconomies of scale for energy companies in some countries. Moreover, young network firms improve TFP growth faster than their peers in countries with fewer product market regulations. Therefore, policies should remove entry barriers while facilitating the departure of old and low-productivity firms from network markets. Finally, policymakers should offer well-targeted fiscal incentives for intangible investments to boost TFP because the accumulation of intangible assets such as digital technology promotes more scale economies through network effects.     

Incentive Regulation of Prices When Costs are Sunk

We present a model featuring irreversible investment, economies of scale, uncertain future demand and capital prices, and a regulator who sets the firm’s output price according to the cost structure of a hypothetical replacement firm. We show that a replacement firm has a fundamental cost advantage over the regulated firm: it can better exploit the economies of scale because it has not had to confront the historical uncertainties faced by the regulated firm. We show that setting prices so low that a replacement firm is just willing to participate is insufficient to allow the regulated firm to expect to break even whenever it has to invest. Thus, unless the regulator is willing to incur costly monitoring to ensure the firm invests, revenue must be allowed in excess of that required for a replacement firm to participate. This contrasts with much of the existing literature, which argues that the market value of a regulated firm should equal the cost of replacing its existing assets. We also obtain a closed-form solution for the regulated firm’s output price when this price is set at discrete intervals. In contrast to rate of return regulation, we find that resetting the regulated price more frequently can increase the risk faced by the firm’s owners, and that this is reflected in a higher output price and a higher weighted-average cost of capital.     

Mark-ups, economies of scale and the role of knowledge spillovers in OECD industries

Using R&D-based models of economic growth as a foundation, this paper argues that market-driven knowledge creation is necessarily linked as an engine of productivity growth to economies of scale and market-power. A cost function and factor demand model is applied to a cross-country industry data set to study market-power, economies of scale and the role of knowledge in an integrated approach. Empirical results reveal the presence of market-power and economies of scale in all of the industries investigated. R&D and spillovers explain some of the productivity growth observed. Spillovers are identified as an external source of economies of scale.     

我国高校效率研究

本文同时应用参数法和非参数法分析我国高校1998—2005年的效率状况:总体来说,我国高校的平均技术效率较高,西部地区高校、理工院校和财经政法大学效率最为明显;我国高校存在规模经济和范围经济,总体规模经济程度不断上升,但总体范围经济程度逐步下降,具体来看,硕士生的规模经济程度较为明显,而硕士生和博士生存在范围不经济现象;DEA和SFA的效率值相关但不显著,效率排序10%显著相关;学校的外部因素和大部分内部因素显著影响学校效率。     

集聚经济与基于价值链的企业区位选择——重新发现内部集聚经济

以往集聚经济的研究多集中在以专业化、多样化等为核心的外部集聚经济,对内部集聚经济关注不足。而在"多部门企业(Multi-unit firms)"组织方式背景下,单一企业的规模经济逐渐扩展为同一集团下属企业由于共同区位带来的内部集聚经济,重新发现内部集聚经济益发重要。文章旨在以华东地区整车集团新成立企业的区位选择为例,分析内部集聚经济对企业区位选择的影响。研究发现:整车集团在某区域的从业人员总数每增加1%,该集团在该地设立下属企业的概率提升0.818%。纳入集团的初始位置、在投资地的投资时长和本地竞争等因素后,内部集聚经济的影响作用依然稳健。集团企业在同一价值链环节内部和不同价值链环节之间均会发生共同集聚。另外,加入内部集聚经济因素后,没有找到外部集聚经济稳健地影响企业区位选择的证据。     

规模经济：理论辨析和现实思考

规模经济的核心涵义是指在投入增加时,产出增加的比例超出投入增加的比例,单位产品的平均成本随产量的增加而降低,规模经济可划分为三个层次,我国工业企业规模不经济的表现：规模小效率低,企业创新能力弱;国际竞争力普通较低,规模不经济的主要原因：一方面是过度竞争,另一方面是行政垄断,企业集团是规模经济的发展趋势,企业实现规模经济的途径：一是内部扩张;二是外部扩张,企业在实现规模经济的过程中应遵循五个原则。