Scale and (quasi) scope economies in airport technology. An application to UK airports

Abstract

In this study we consider a sample of the largest UK airports in order to estimate, for the first time for this sector, a multiproduct cost function using a flexible technology that nests most of the specifications commonly employed in the empirical literature. Another novelty of this work is that we provide estimates of quasi- scope economies for the airport industry, defined as the cost advantage for a diversified firm of jointly providing a set of outputs/services with respect to the costs of their provision through a set of firms quasi-specialized in a single production. Our main results suggest the existence of quasi-scope economies that tend to decline with the size of the airport. This finding, coupled with the results of a set of cost complementarity tests, suggest that cost savings mainly arise from the joint provision of services for national and international passengers and, to a lesser extent, to the addition of cargo transport activities. In turn, pairs of outputs that include (a proxy of) commercial revenues seem to be characterized by anti-cost complementarities. Finally, global economies of scale seem to be exhausted at about five million passengers.