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Cost structure and production functions in transport are well documented in empirical research. However, one of the most important characteristics of transport companies, namely the network character of their services, is neglected in this context. This study sets out, therefore, to investigate the influence of network characteristics on the costs in the case of the 48 Swiss private railways. Using a trans log specification, total and variable cost functions are estimated using three different network indicators. The results obtained from data on the years 1985 to 1988 indicate the presence of important cost economies relating to density, scale and network structure. It is concluded that the Swiss private railway network is not optimally designed in terms of size and structure nor is it operated at an optimal level. In policy terms, we interprete these findings as an indicator for potential benefits from end-to-end and parallel mergers.