The cost of the last mile

The economics of networks is fascinating. One recurring feature is the costly last mile. I’m borrowing this term from telecommunications, where it refers to the final part of the network, which actually reaches the consumer – e.g. the copper cables that carry your ADSL services from the exchange. Most ‘transport’ (loosely interpreted to include electricity, water, internet) benefits from economies of scale. For example, a bus fare is less than a taxi fare for the same route in part because the cost of the driver’s time is divided between 50 passengers rather than 4. For this reason, transport networks tend to be planned as (or evolve to) a branching structure – think the hub & spoke structure of US airlines – with very high capacity ‘trunk’ routes and lower capacity branches.