CALCULATION OF ECONOMIES OF SPATIAL SCOPE FROM TRANSPORT COST FUNCTIONS WITH AGGREGATE OUTPUT (with an application to the airline industry)

Transport network expansions have been usually analyzed calculating returns to scale with variable network size (RTS), which has been shown to suffer from a number of shortcomings because, in the end, it attempts to capture as a scale property what in fact is related with scope, namely the addition of new products when a transport network expands. In this paper we develop a method to calculate economies of spatial scope from transport cost functions with aggregate output, which is then illustrated using the results of a published study on airlines. We conclude that the method holds very well and that, coupled with the strict calculation of economies of scale (corrected returns to density), it permits a clear explanation of observed firm behavior.