A translog cost function of the integrator business : a comparison between FedEx and UPSA translog cost function of the integrator business : a comparison between FedEx and UPS
Faculty of Applied Economics
Transport and Regional Economics
Proceedings of the 16th World Conference of Air Transport Research Society (ATRS), 27-30 June 2012, Tainan, Taiwan
(2012), p. 1-50
University of Antwerp
This paper intends to deeply analyse the cost structure of the integrated air freight business by means of a flexible functional form, namely the translog cost function. This analysis allows us to extend our knowledge on the supply side of the integrated air freight industry and the industrial economic relationships within the industry. The cost function estimation is based on quarterly time-series data from 1990 to 2010 of FedEx and UPS. A total as well as a variable cost function is estimated. We find that both integrators exhibit economies of scale and economies of density. This important result is in line with the current consolidation trend in the industry, of which the acquisition of TNT Express by UPS in 2012 is a very clear sign.