A method is presented to decide how to calculate the degree of scale economies from estimated transport cost functions which include aggregate outputs as arguments. It is shown that the cost elasticity of each of these aggregates should be weighted by a factor that depends crucially on the relation between the aggregate and the output vector.
The deregulation of the trucking industry in the US began in 1978 and was completed in 1980. This study tests for economies of scale and productive efficiency in the trucking industry. Results indicate constant returns to scale in the trucking industry for both pre- and post-deregulation periods. Gains from mergers are likely to be moderate.
The paper argues that output characteristics are positively correlated with, and influenced by, firm size. When firm size increases, output characteristics also change in a direction that reduces unit costs. Drawing on evidence from the US trucking industry, an appropriate specification indicates that economies of scale may well exist.
