Economies of scale and scope in Australian telecommunications

Abstract

This paper employs a composite cost function to examine the cost structure of Australian telephone services. The composite cost model combines the log-quadratic input price structure of the translog model with a quadratic structure for multiple outputs. Quadratic output structures permit the measurement of economies of scale, economies of scope, and subadditivity without prejudging their presence. Model estimates, on Telstra system data from 1926 to 1991, show that the production of Australian telephone services exhibits economies of scope but no ray economies of scale.Telecommunications; production; scale; scope; Australia