Strategic formation and welfare effects of airline-high speed rail agreements

Alessandro Avenali, Valentina Bracaglia, Tiziana D'Alfonso and Pierfrancesco Reverberi

Transportation Research Part B: Methodological, 2018, vol. 117, issue PA, 393-411

Abstract: Policy makers encourage airline-high speed rail (HSR) cooperation to promote intermodal passenger transport. We study the strategic formation of airline-HSR partnerships (depending on sunk costs and firms’ bargaining power) and their effects on consumer surplus and social welfare. We assume that airline-HSR agreements serve to offer a bundle of domestic HSR and international air services. In a capacity purchase (CP) agreement, the airline buys train seats to sell the bundle, whereas in a joint venture (JV) agreement firms create a distinct business unit. We find that both agreements increase traffic in the network, and thereby may not reduce congestion at hub airports. We provide antitrust authorities with a simple two-tier test for the CP agreement to improve consumer surplus. Contrary to airline-HSR mergers, the JV agreement benefits consumers independent of hub congestion and mode substitution. Simulation results show that, in case of cooperation, public agencies should prefer firms to create a JV, unless the related sunk costs are far greater than the costs of the CP agreement.

Keywords: Airline-high speed rail cooperation; Airport congestion; Capacity purchase agreements; Joint venture agreements; Competition policy (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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DOI: 10.1016/j.trb.2018.09.002

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