High Economies Of Scale Research Articles

Order-Fulfillment Coalitions in a Hybrid E-Commerce Platform: Myopic versus Farsighted Stability

This paper considers the order-fulfillment coalitions among an e-tailer and two third-party sellers in a hybrid e-commerce platform. The e-tailer uses a self-supported logistics system to fulfill the orders, and the seller can either use the former or turn to third-party logistics systems. By investigating the equilibrium order quantities, the strong preference relations, and the possible deviations for all the possible coalition structures, we discuss both myopic stability and farsighted stability for all the coalition structures. We find that if economies of scale are absent, fulfilling the orders independently is unique Nash stable and farsightedly stable; however, if alliances generate economies of scale, there may not exist Nash stable, but the farsightedly stable outcome always exists, which further depends on the interaction between the e-tailer’s order-fulfillment cost advantage and economies of scale. Further discussions on extremely high economies of scale and the proportional commission fee are also conducted.

Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale

We propose a model to study the role of industry-level external economies of scale in open economies. If the elasticity governing the strength of external economies is below the inverse of the trade elasticity in each industry, then specialization under frictionless trade is consistent with comparative advantage, the model is tractable even with trade frictions, and all countries gain from trade. External economies lower gains from trade except if the country specializes in industries with high scale economies, and they amplify the gains from further trade liberalization except if it leads to specialization in industries with low scale economies. (JEL D24, F11, F12, F13)

The Growth Impact of Exports in South Asian Countries

How exports affect growth has attracted considerable attention of the researchers in recent years. The failure of the import substitution policy during 1950s and 1960s to engender growth, led the South Asian countries to adopt export promotion strategy in the 70s and 80s to foster their economic growth. Many factors have caused this shift. Firstly, higher export earnings are expected to enhance the ability of a developing country to import additional industrial raw materials and capital goods, which in turn, are likely to expand its productive capacity. Secondly, the competition in the exports market may allow for greater capacity utilisation, higher economies of scale, greater specialisation on the basis of comparative advantage and accelerated technical progress in production for greater contribution to increased employment. Thirdly, strong correlation observed between exports and economic growth prompts export promotion further as part of the development strategy [Khan, et al. (1995)].

Estimating equivalence scales and non-food needs in Egypt: Parametric and semiparametric regression modeling.

This paper investigated the appropriate specifications of Engel curves for non-food expenditure categories and estimated the deprivation indices of non-food needs in rural areas using a semi parametric examination of the presence of saturation points. The study used the extended partial linear model (EPLM) and adopted two estimation methods—the double residual estimator and differencing estimator—to obtain flexible shapes across different expenditure categories and estimate equivalence scales. We drew on data of the Egyptian Household Income, Expenditure, and Consumption Survey (HIEC). Our paper provides empirical evidence that the rankings of most non-food expenditure categories is of rank three at most. Rural households showed high economies of scale in non-food consumption, with child’s needs accounting for only 10% of adult’s non-food needs. Based on semi-parametrically estimated consumption behavior, the tendency of non-food expenditure categories to saturate did not emerge. While based on parametrically estimated consumption behavior, rural areas exhibited higher deprivation indices in terms of health and education expenditure categories, which indicates the need to design specific programs economically targeting such vulnerable households.

The economics of electric roads

In this paper we present a method for evaluating social benefits of electric roads and apply it to the Swedish highway network. Together with estimated investments costs this can be used to produce a cost benefit analysis. An electric road is characterized by high economies of scale (high investment cost and low marginal cost) and considerable economies of scope (the benefit per kilometre electric road depends on the size of the network), implying that the market will produce a smaller network of electric roads, or charge higher prices for its use, than what is welfare optimal. For this reason, it is relevant for governments to consider investing in electric roads, making the cost-benefit analysis a key decision support. We model the behaviour of the carriers using the Swedish national freight model system, SAMGODS, determining the optimal shipment sizes and optimal transport chains, including mode and vehicle type. We find that if the user charge is set as to optimize social welfare, the revenue will not fully cover the investment cost of the electric road. If they are instead set to optimize profit, we find that the revenue will cover the costs if the electric road network is large enough. Electric roads appear to provide a cost-effective means to significantly reduce carbon emissions from heavy trucks. In a scenario where the expansion connects the three biggest cities in Sweden, emissions will be cut by one-third of the overall emissions from heavy trucks in Sweden. The main argument against a commitment to electric roads is that investment and maintenance costs are uncertain and that, in the long run, battery development or hydrogen fuel cells can reduce the benefit of such roads.

Mergers and Acquisitions in the Data Economy

In research, public, and policy debate, there is increasing interest in data intensive firms like Google, Facebook, and Amazon. As business models of data firms are often characterized by high scale economies and network externalities, they are expected to have a particularly large incentive to grow, among others through mergers and acqui- sitions (M&A). Adding to the up to now mainly theoretical or anecdotal discussion on data intensive firms, this study empirically analyzes the relationship between firms’ data intensity and M&A activity. Using text-based measures to identify data inten- sive firms, I find that data generators are more likely to become acquirers, whereas data analysis and storage companies are more likely to become targets. Transactions by data firms, on average, do not create value as abnormal announcement returns are zero. There is evidence for pre-emptive merger activity, i.e., data intensive firms acquiring particularly often rather small, non-public companies that are not (yet) on the radar of competition authorities.

Empirical Study on Economies of Scale in China Manufacturing

The paper is based on Chinese industrial enterprises database, applying the method of translog cost function to measure the economies of scale in manufacturing during the period between 2000 to 2013. The result shows that the mean of scale economies (SCE) is between 0.993 and 0.996, which indicates slight diseconomies of scale. From the perspective of the SCE variation trend, before 2010, there was a decreasing trend year by year, and the variation remained stable after 2010. Considering manufacturing heterogeneity, the paper divides manufacturing into nine groups to measure economies of scale. The group measurement results show that mining industry and light industry have high economies of scale, but in a decreasing state, other sub-sectors show slight diseconomies of scale and in a stable state.

The Cap Dualism-Efficiency or Competition

The Common Agricultural Policy of the EU (CAP) contains incentives for consolidation of resources and integration of organizations. The entire CAP follows the concept of efficiency achieved through product structure optimization and economies of scale. CAP imposes an advantage for the concept of efficiency at each level of the economic system. For this reason, integration -- horizontal and vertical -- has been imposed as more important for farmers than competition. Such an approach stimulates large-scale exchange and consolidation of resources, at the same time being a prerequisite for problems for market competition. The Chicago School addresses the concept of efficiency in relation to the “antitrust paradox” . Harvard authors propose that the “leverage effect” can occur as a result of efficiency, meaning that the related markets could be influenced by some market players, and therefore discrimination against other subjects can emerge. Another way to achieve higher economies of scale is horizontal integration. Practically, however, in the course of resource exchange, certain actors can be excluded from the economic organization. The type of organizational structure determines the way of resource distribution and it is essential for competition. A critical analysis of the collision between competition and integration has been offered by Glick M. Actually, efficiency may turn out to be in a conflict with competition.

Achieving a competitive edge through merger: evidence from telecoms industry of Bangladesh

This research aims to analyse the historic merger between Robi and Airtel, two major telecom operators in a developing country, Bangladesh. There were six operators in the telecoms industry with Grameenphone as the dominant leader. Amid the fierce competition and price war, the merger has taken place and formed consolidated Robi Axiata, with the goal of developing the number one cellular network with widest coverage and the second largest operator of the country. The estimated outcomes of the successful merger are higher profitability and market share, increased subscriber base, higher economies of scale, financial stability, improved spectrum, extensive sale and distribution channels, etc. which will ultimately lead to a sustainable competitive advantage. However, while Robi Axiata has become the second largest telecoms operator, it has a lot to accomplish in order to improve financial performance and develop a competitive edge in the long-term. In addition, the gains from the merger are expected to be realised by the stakeholders, companies, industry, and customers. Currently, the consolidation has started a new era in Bangladesh economy and its actual benefits can only be verified in the future. With profound qualitative analysis, the study offers valuable managerial and policy implications.

Achieving a competitive edge through merger: evidence from telecoms industry of Bangladesh

This research aims to analyse the historic merger between Robi and Airtel, two major telecom operators in a developing country, Bangladesh. There were six operators in the telecoms industry with Grameenphone as the dominant leader. Amid the fierce competition and price war, the merger has taken place and formed consolidated Robi Axiata, with the goal of developing the number one cellular network with widest coverage and the second largest operator of the country. The estimated outcomes of the successful merger are higher profitability and market share, increased subscriber base, higher economies of scale, financial stability, improved spectrum, extensive sale and distribution channels, etc. which will ultimately lead to a sustainable competitive advantage. However, while Robi Axiata has become the second largest telecoms operator, it has a lot to accomplish in order to improve financial performance and develop a competitive edge in the long-term. In addition, the gains from the merger are expected to be realised by the stakeholders, companies, industry, and customers. Currently, the consolidation has started a new era in Bangladesh economy and its actual benefits can only be verified in the future. With profound qualitative analysis, the study offers valuable managerial and policy implications.

A continuous hub location model with service constraints for shipping network design

We propose a continuous hub location model with service constraints for followers to address the considered problem, describing a situation in which a leader operates a hub-and-spoke shipping network together with a follower who wants to enter into the same shipping market. Subsequently, an augmented Lagrangian function method based on binary entropy function and aggregate function is proposed for the nonlinear 0-1 programming problem. Finally, the conclusions are reached by numerical experiments that, (1) the follower’s profits will be the most significant if there are high scale economies, (2) the follower will obtain certain profits by opening a moderate number of hub ports in the case of the service price being considered by consignors even without economies of scale.

Trade in Central and Eastern European countries ten years after their EU accession — Is there convergence?

The paper focuses on the effects of EU’s Eastern Enlargement of 2004 on trade convergence within the EU and among the new member states from Central and Eastern Europe (CEE-8). Using sigma-convergence approach, it finds evidence of convergence of exports and imports per capita as well as of productivity levels associated with the member states’ export baskets. Convergence of territorial and commodity structures of trade has not occurred; conversely, divergence has been observed, leading to the possible conclusion that multinational companies have adjusted their production structure in facilities across the EU to achieve higher economies of scale. Correlation analysis shows that revealed comparative advantages of the old and new member states have come closer to each other. As an example, the paper also offers a brief comparison of trade development in two CEE-8 countries, Latvia and Slovakia, after their entry into the EU.

Design for the environment: Impact of regulatory policies on product development

Globally automakers are facing pressure from their stakeholders to follow sustainable business practices and produce products that are less harmful to the environment. The introduction of gas guzzling automobiles in the US market despite the increasingly stringent emission norms highlights the widening gap between the goals of the regulators and the automakers, demanding a fresh outlook at the regulatory framework. In this paper, we therefore propose a composite regulatory standard that not only allows the regulators to control various environmental standards, but also provides automakers with an opportunity to exploit scale economies and synergies in product development. Our results show that under composite regulations, sufficiently high economies of scale will ensure higher traditional and environmental qualities as well as higher profits for the automaker while operating in two markets as opposed to a single market. We also find under the composite regulations that, when more demanding norms are in place, despite positive synergies between traditional and environmental quality attributes, higher environmental quality is not guaranteed unless the scale economies are sufficiently high. Our work has implications for regulatory authorities in evaluating alternative policy design under heterogeneous market characteristics and technological synergies.

Estimating unbiased economies of scale of HIV prevention projects: A case study of Avahan

Governments and donors are investing considerable resources on HIV prevention in order to scale up these services rapidly. Given the current economic climate, providers of HIV prevention services increasingly need to demonstrate that these investments offer good ‘value for money’. One of the primary routes to achieve efficiency is to take advantage of economies of scale (a reduction in the average cost of a health service as provision scales-up), yet empirical evidence on economies of scale is scarce. Methodologically, the estimation of economies of scale is hampered by several statistical issues preventing causal inference and thus making the estimation of economies of scale complex. In order to estimate unbiased economies of scale when scaling up HIV prevention services, we apply our analysis to one of the few HIV prevention programmes globally delivered at a large scale: the Indian Avahan initiative. We costed the project by collecting data from the 138 Avahan NGOs and the supporting partners in the first four years of its scale-up, between 2004 and 2007. We develop a parsimonious empirical model and apply a system Generalized Method of Moments (GMM) and fixed-effects Instrumental Variable (IV) estimators to estimate unbiased economies of scale. At the programme level, we find that, after controlling for the endogeneity of scale, the scale-up of Avahan has generated high economies of scale. Our findings suggest that average cost reductions per person reached are achievable when scaling-up HIV prevention in low and middle income countries.

User community vs. producer innovation development efficiency: A first empirical study

In this paper we report upon a first empirical exploration of the relative efficiency of innovation development by product users vs. product producers. In a study of over 50 years of product innovation in the whitewater kayaking field, we find users in aggregate were approximately 3× more efficient at developing important kayaking product innovations than were producers in aggregate. We speculate that this result is driven by what we term “efficiencies of scope” in problem-solving. These can favor an aggregation of many user innovators, each spending a little, over fewer producer innovators benefitting from higher economies of scale in product development. We also note that the present study explores only one initial point on what is likely to be a complex efficiency landscape.

Are European Banks Too Big? Evidence on Economies of Scale

This paper investigates the level of economies of scale, as well as their determinants, for 103 European listed banks over the period 2000-2011 by employing a Stochastic Frontier Approach. The results reveal that economies of scale are widespread and move together for all size classes, although small and medium-sized banks experience the lowest economies of scale and even diseconomies of scale in some of the years under analysis. At country level, the smallest financial systems (Iceland, Belgium and Finland) and the countries most affected by the financial crisis (Ireland, Iceland, Belgium, Portugal and Spain) experience the lowest economies of scale (if not even diseconomies of scale) probably due to the small/reduced use of their production capacity. With regard to the effects on economies of scale of risk-taking, diversification in the business model and profitability, higher economies of scale are documented for banks more oriented towards investment banking (in all periods), banks with a higher liquidity but only up to a liquidity ratio of about 5.3 percent (convex curve during the crisis only), banks with less Tier 1 (concave, although almost flat, curve during the crisis only), and banks contributing less to systemic risk (during the crisis only). The main policy implication concerns the too big to fail regulation, and especially the fact that the break-up hypothesis seems not to find support from our evidence.

Scale economies and trade

While previous research has shown that industries with high-scale economies more frequently have low rather than high intra-industry trade shares, this study provides strong support for other predictions of modern trade models. Industries with high-scale economies more frequently have high rather than low export and import shares. A finding that high-scale economies is associated with low net export shares may be due to the role scale economies play in generating both high industry export and import shares. Theoretical and empirical studies should focus attention on relationships among scale economies, trade flows and net exports.

Ownership, diversification and cost advantages: Evidence from the Italian leasing industry

Using Greene's (2005) random parameter cost frontier model and a unique hand-collected dataset, this paper provides novel evidence on the cost advantages of Italian leasing companies over 2002–2008, focusing on ownership structures and diversification strategies. Results suggest that cost efficiency and economies of scale have decreased significantly over the period analyzed. Bank-related, independent and domestic leasing companies are more able to control costs than their captive and foreign counterparts. Diversification strategies can be crucial in determining the cost effectiveness of leasing firms. Nonetheless, smaller, independent and less diversified leasing firms appear to benefit from higher economies of scale and greater technological advancements.

Conglomerate Industry Choice and Product Differentiation

We analyze the words that rms use to describe their products to examine in which industries rms operate. We nd strong support for the proposition that when asset complementarities across product markets are strong as measured by industry product language overlaps, rms are more likely to operate across industries. More generally, multiple-industry rms avoid industries with more distinct language boundaries, as measured using language transitivity from rival to rival. Multiple-industry rms are also less likely to operate in industries with high within-industry word similarity and high economies of scale. These ndings are consistent with rms choosing organizational form based on product market characteristics and asset complementarities.

Innovation as Consumption: Analysis of Consumers’ Innovation Efficiency

In this paper we report upon a first empirical exploration of the relative efficiency of innovation development by product users vs. product producers. In a study of over 50 years of product innovation in the whitewater kayaking field, we find users in aggregate were approximately 3X more efficient at developing important kayaking product innovations than were producers in aggregate. We speculate that this result is driven by what we term “efficiencies of scope” in problem-solving. These can favor an aggregation of many user innovators, each spending a little, over fewer producer innovators benefitting from higher economies of scale in product development. We also note that the present study explores only one initial point on what is likely to be a complex efficiency landscape.