Firm size in gas distribution. Economies of scale, regulatory dynamics, and policy implications

We revisit the discussion on the optimal size of firms in the piped gas distribution sector, focusing on developments within the Argentine industry. Utilizing a comprehensive dataset spanning nearly three decades, we analyze the evolving cost patterns among gas firms, significantly influenced by shifting customer demands and regulatory dynamics. We find that firms benefit from economies of scale and emphasize the significance of addressing capital stock imbalances when formulating sectoral policies, as excess capacity can lead to diverging policy recommendations. Additionally, we identify considerable cost benefits for firms integrated within larger conglomerates. Our findings underscore the need to revise sectoral policies to align with dynamic market conditions, thereby enhancing cost efficiency and facilitating the development of well-informed sectorial policies.