Cost function estimation of multi-service firms. Evidence from the passenger transport industry

In this paper, using a sample of Italian passenger transport firms, we compare the estimates from a Composite Cost Function econometric model (Pulley and Braunstein, 1992) with the ones coming from other traditional functional forms such as the Standard Translog, the Generalized Translog, and the Separable Quadratic. The results highlight the presence of global scope and scale economies only for multi-service firms (providing urban, intercity and for-hire bus transport services) with output levels lower than the ones characterising the ‘average’ firm. This indicates that relatively small, specialised firms would benefit from cost reductions by evolving into multi-service firms providing urban, intercity and for-hire bus transport. As for the intercity service, the most efficient solution seems the integration with urban operators rather than integrating with for-hire bus services.