Some evidences of diseconomies of scale in bus industry

Public transport industry, largely based on bus systems, is often claimed to be dominated by economies of scale. The larger is the firm, the better should be, also due to lower costs and better integration of the network and to easier management. However, many empirical evidences show that larger firms are characterised by production costs considerably higher than smaller ones. The paper aims at discussing the topic of economies/diseconomies of scale in bus industry. It starts reviewing the known literature on the topic. Some empirical data will be provided, coming from Italian regional bus companies in Lombardy, Sicily and Veneto. Then, a discussion on variables influencing costs is done, starting from real world costs. The results of the analyses will be drawn, stressing that some economies of scale exist only among smaller firms, while costs tend to increase with dimension for larger ones. Finally, conclusion will provide a twofold comment. Firstly, a possible explanation of the phenomenon is given. Secondly, it is suggested that regulatory strategies should adapt to this counterintuitive fact, preferring medium sized tenders rather large ones, not only for granting more contestability, but also for financial reasons.