From Economies of Density and Network Scale to Multioutput Economies of Scale and Scope: a Synthesis

For more than twenty years, the cost structure of transport industries in general, and the airline industry in particular, has been analyzed through the calculation of two indices: returns to density (RTD) and returns to scale (RTS), which were originally proposed by Caves et al. (1984). During this period, there have been many observations, amendments, caveats and corrections about their calculation (e.g. Gagne, 1990, Antoniou, 1991; Ying, 1992, Filippini and Maggi, 1992; Xu et al. 1994). However, both RTD and RTS have become the textbook tools to examine empirically, from a cost perspective, important issues such as merging, or the optimal shape and size of transport networks (see for instance Small, 1992; Braeutigam, 1999; Pels and Rietveld, 2000). The objective of this article is to organize this discussion, and to offer an interpretative synthesis of a number of results on the subject that have been obtained by the authors. The main conclusion is that RTD and RTS should be replaced with three concepts: a corrected version of economies of density (Jara-Díaz and Cortés, 1996), the multioutput degree of economies of scale (Basso and Jara-Díaz, 2006a), and the degree of economies of spatial scope (Basso and Jara-Díaz, 2005).