Regulatory policy and economies of scale in the U.S. intercity bus industry

After nearly a half century of federal and state regulation, the U.S. intercity bus industry is the subject of proposals which would drastically reduce the extent of governmental control over fare setting, service abandonment, and market entry. An essential requirement for understanding how these regulatory changes might affect the industry is knowing the extent to which economies of scale are present in the provision of intercity bus services. This paper reports on the analysis of economies of scale for both Class I firms and for Class II and III firms. The results show nearly constant returns to scale beyond very low output levels but very strong dependence on the mix of charter and regular-route service provided.