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Economies of Scale and Natural Monopoly in the U.S. Local Telephone Industry

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  • Nakil Sung
  • Michael Gort

Abstract

This paper shows that firm-specific economies of scale—or net overall economies—are correlated with subadditivity. Both economies of scale and subadditivity are a decreasing function of firm size. Most firms are observed to be in the relatively flat portion of the long-run average cost curve, with pronounced economies of scale observable only at the low end of the scale. Economies of scope, as reflected in cost complementarities, do not appear to be a source of subadditivity. The results are estimated using translog total cost functions, and the fact that these cost functions include arguments for the quality of capital and of labor represents an innovation in methodology. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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  • Nakil Sung & Michael Gort, 2000. "Economies of Scale and Natural Monopoly in the U.S. Local Telephone Industry," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 694-697, November.
    • Handle: RePEc:tpr:restat:v:82:y:2000:i:4:p:694-697
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.2000.82.4.694
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    Cited by:

    1. Hidalgo-Gallego, Soraya & Núñez-Sánchez, Ramón & Coto-Millán, Pablo, 2017. "Spatial non-price competition in port infrastructure services," MPRA Paper 80417, University Library of Munich, Germany.
    2. Paweł Dziewulski, 2008. "Konkurencja na rynku telekomunikacyjnym przy asymetrycznym dostępie do infrastruktury," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5-6, pages 47-69.
    3. Russell Pittman, 2003. "Vertical Restructuring (or Not) of the Infrastructure Sectors of Transition Economies," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 5-26, March.
    4. Anna Bottasso & Maurizio Conti, 2010. "An Assessment on the Cost Structure of the UK Airport Industry: Ownership Outcomes and Long Run Cost Economies," Working papers 13, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    5. Russell Pittman, 2001. "Vertical Restructuring of the Infrastructure Sectors of Transition Economies," Industrial Organization 0111002, University Library of Munich, Germany.

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