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Regulated versus negotiated access pricing in vertically separated railway systems

Author

Listed:
  • David Besanko

    (Northwestern University)

  • Shana Cui

    (University of Florida)

Abstract

This paper studies access pricing under three regimes: regulated access (VSR), negotiated access with discriminatory pricing (VSD) and negotiated access with non-discriminatory pricing (VSN). We compare each regime along three metrics: network quality, consumer surplus, and social welfare. To do so, we use a three-stage game, in which the regulator can commit to the access tariff under VSR and the network firm and the transport operators need to bargain over the access tariff under VSD and VSN. Each approach is second best, resulting in equilibrium qualities and quantities that are less than first-best levels, and the comparison between regulated and negoitated access is ambiguous. However, under a wide range of circumstances VSD and VSN result in greater investment to upgrade network quality than VSR. Computational analysis reveals that if the bargaining power of the network firm under negotiated access is sufficiently strong, VSD tends to result in higher social welfare than VSR. However, VSR often results in higher consumer surplus.

Suggested Citation

  • David Besanko & Shana Cui, 2019. "Regulated versus negotiated access pricing in vertically separated railway systems," Journal of Regulatory Economics, Springer, vol. 55(1), pages 1-32, February.
    • Handle: RePEc:kap:regeco:v:55:y:2019:i:1:d:10.1007_s11149-019-09374-z
    DOI: 10.1007/s11149-019-09374-z
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    References listed on IDEAS

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    Cited by:

    1. Mizutani, Fumitoshi, 2020. "A comparison of vertical structural types in the railway industry: A simple mathematical explanation model," Research in Transportation Economics, Elsevier, vol. 81(C).
    2. Patrice Bougette & Axel Gautier & Frédéric Marty, 2021. "Which access to which assets for an effective liberalization of the railway sector?," Competition and Regulation in Network Industries, , vol. 22(2), pages 87-110, June.
    3. Shana Cui & David E. M. Sappington, 2021. "Access pricing in network industries with mixed oligopoly," Journal of Regulatory Economics, Springer, vol. 59(3), pages 193-225, June.
    4. Branislav Bošković & Mirjana Bugarinović & Gordana Savić & Ratko Djuričić, 2021. "Challenges of Track Access Charges Model Redesign," Sustainability, MDPI, vol. 13(24), pages 1-14, December.
    5. Michael L. Polemis & Markos Tselekounis, 2022. "Upstream regulation and non-separable innovation," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(2), pages 301-312, June.
    6. Börjesson, Maria & Rushid, Ajsuna R. & Liu, Chengxi, 2021. "The impact of optimal rail access charges on frequencies and fares," Economics of Transportation, Elsevier, vol. 26.

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    More about this item

    Keywords

    Access pricing; Railway restructuring; Vertical separation; Two-part tariffs; Nash bargaining;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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