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Investment, Reprocurement and Franchise Contract Length in the British Railway Industry

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  • Affuso, Luisa
  • Newbery, David M G

Abstract

This Paper studies the interaction between repeated auctions of rail franchises of different lengths, uncertainty, and incentives for investment in rolling stock, following the privatization of British Rail. Theoretical predictions are tested empirically using a unique panel of data. Theory suggests that short franchise lengths reduce incentives to invest in specific assets. Our empirical results suggest that competition and strategic behaviour at the re-procurement stage can create incentives for delayed investment. Investing just before the end of the franchise enhances the incumbent’s probability of having the contract re-awarded and provides it with a first-mover advantage, while raising the entry cost for other potential bidders.

Suggested Citation

  • Affuso, Luisa & Newbery, David M G, 2000. "Investment, Reprocurement and Franchise Contract Length in the British Railway Industry," CEPR Discussion Papers 2619, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2619
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    References listed on IDEAS

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    Cited by:

    1. Newbery, David M., 2003. "Network capacity auctions: promise and problems," Utilities Policy, Elsevier, vol. 11(1), pages 27-32, March.
    2. Elisabetta Iossa & Patrick Rey, 2014. "Building Reputation For Contract Renewal: Implications For Performance Dynamics And Contract Duration," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 549-574, June.
    3. Rico Merkert, 2005. "Die Reorganisation und Zukunft des Eisenbahnwesens in Großbritanien," Volkswirtschaftliche Diskussionsbeiträge 78, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
    4. Rob Aalbers & Victoria Shestalova & Sander Onderstal, 2004. "Better safe than sorry? Reliability policy in network industries," CPB Document 73, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Ivaldi, Marc & Seabright, Paul, 2003. "The Economics of Passenger Rail Transport: A Survey," IDEI Working Papers 163, Institut d'Économie Industrielle (IDEI), Toulouse.

    More about this item

    Keywords

    Contracts; Investment; Panel Data; Railways;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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