Number of Points Served and Economies of Spatial Scope in Transport Cost Functions

Within the context of transport cost functions, network variables have been traditionally used to calculate what is called economies of scale (RTS) as opposed to those of density (RTD). This paper argues that increasing network size is unambiguously associated with an increase in the number of products and, therefore, network variables are related with economies of scope. This is rigorously shown using the variable "number of points served" which suggests that RTS hides scope while RTD represents scale. An analytical relation between the network size elasticity of cost and economies of spatial scope is derived. This finding induces an alternative interpretation of the results obtained from transport cost functions with aggregate output descriptions. ? The London School of Economics and the University of Bath 2001