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Open Access Publications from the University of California

Integrated Air Freight Cost Structure: The Case of Federal Express


This paper analyzes the economic structure of the integrated air freight industry. We evaluate a total cost model for Federal Express, Inc. by analyzing quarterly time-series data from 1986-1992. We find that Federal Express, and arguably all dedicated air freight carriers, exhibit diseconomies of scale and significant economies of density. We show that these two economic concepts can be restrictive, however, and introduce a third aspect of the integrated air freight industry’s economic structure that combines the effects of economies of density and economies of scale. We call it economies of size, and show that Federal Express exhibits approximately constant economies of size. The conditions under which these findings hold are discussed.

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