Competition Effects in a Liberalized Railway Market

Markus Lang*, Marc Laperrouza, Matthias Finger

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

This paper presents a game-theoretic model of a liberalized railway market, in which train operation and ownership of infrastructure are vertically separated. We analyze how the regulatory agency will optimally set the charges that operators have to pay to the infrastructure manager for access to the tracks and how these charges change with increased competition in the railway market. Our analysis shows that an increased number of competitors in the freight and/or passenger segment reduces prices per kilometer and increases total output in train kilometers. The regulatory agency reacts to more competition with a reduction in access charges in the corresponding segment. Consumers benefit through lower prices, while individual profits of each operator decrease through a higher number of competitors. We further show that the welfare effect of increased competition in the freight and/or passenger segment is ambiguous and depends on the level of competition. Finally, social welfare is higher under two-part tariffs than under one-part tariffs if raising public funds is costly to society.

Original languageEnglish
Pages (from-to)375-398
Number of pages24
JournalJournal of Industry, Competition and Trade
Volume13
Issue number3
DOIs
Publication statusPublished - Sept 2013
Externally publishedYes

Keywords

  • access charge
  • optimal pricing
  • railways
  • regulation
  • vertical integration

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