Intermodal competition between intercity buses and trains: A theoretical model

Cornelia Gremm, David Bälz, Chris Corbo and Kay Mitusch

No 135, Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Management

Abstract: The intercity bus market in Germany was deregulated in 2013. As a consequence, there is now a dense network of intercity bus lines. For the first time, the German state-owned railway company Deutsche Bahn AG faces intermodal competition in public intercity passenger land transport on a large number of lines. This paper examines market entry factors for intercity bus companies and price reactions of the incumbent railway company from a theoretical perspective. Our model builds on Salop's circular city model to describe the horizontal product differentiation among the bus companies. At the same time, the railway company occupies the center of the circle and offers a higher product quality than the buses. It dominates the market, while a number of bus companies constitute an oligopolistic competitive fringe. In the subsequent comparative statics analysis, it is shown that the quality differential between the train and bus services have a considerable effect on market entry decisions by buses as well as on price reactions by the incumbent railway company. In particular, on routes where the quality advantage of railway services is rather small, buses are more likely to enter and the railway company will respond with a stronger price reduction than on other routes.

Keywords: intermodal competition; intercity railway and bus services; Salop circle model with center; vertical and horizontal product differentiation; dominant firm with oligopolistic fringe (search for similar items in EconPapers)
JEL-codes: L11 L13 R40 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-bec, nep-com, nep-tre and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/204523/1/1677871733.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:kitwps:135

DOI: 10.5445/IR/1000098469

Access Statistics for this paper

More papers in Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().