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Competition Effects in a Liberalized Railway Market

Markus Lang (), Marc Laperrouza () and Matthias Finger

Journal of Industry, Competition and Trade, 2013, vol. 13, issue 3, 375-398

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. Copyright Springer Science+Business Media, LLC 2013

Keywords: access charge; optimal pricing; railways; regulation; vertical integration; D40; L22; L51; L92 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Competition Effects in a Liberalized Railway Market (2011) Downloads
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