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Competition Effects in a Liberalized Railway Market

  • Markus Lang

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Marc Laperrouza

    ()

    (Management of Network Industries, Swiss Federal Institute of Technology Lausanne (EPFL))

  • Matthias Finger

    ()

    (Management of Network Industries, Swiss Federal Institute of Technology Lausanne (EPFL))

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.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/131_ISU_full.pdf
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0131.

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Length: 28 pages
Date of creation: Sep 2010
Date of revision: Apr 2011
Handle: RePEc:iso:wpaper:0131
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  1. Jean-Jacques Laffont & Jean Tirole, 1994. "Access Pricing and Competition," Working papers 94-31, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Thorsten Beckers & Christian von Hirschhausen & Fabian Haunerland & Matthias Walter, 2009. "Long-Distance Passenger Rail Services in Europe: Market Access Models and Implications for Germany," OECD/ITF Joint Transport Research Centre Discussion Papers 2009/22, OECD Publishing.
  3. Armstrong, M. & Doyle, C. & Vickers, J., 1995. "The access pricing problem: a synthesis," Discussion Paper Series In Economics And Econometrics 9532, Economics Division, School of Social Sciences, University of Southampton.
  4. Armstrong Mark, 2008. "Access Pricing, Bypass and Universal Service in Post," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-16, June.
  5. Chris Nash, 2005. "Rail Infrastructure Charges in Europe," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 39(3), pages 259-278, September.
  6. Nash, Chris, 2008. "Passenger railway reform in the last 20 years - European experience reconsidered," Research in Transportation Economics, Elsevier, vol. 22(1), pages 61-70, January.
  7. Link, Heike & Nilsson, Jan-Eric, 2005. "Infrastructure," Research in Transportation Economics, Elsevier, vol. 14(1), pages 49-83, January.
  8. Russell Pittman, 2003. "Vertical Restructuring (or Not) of the Infrastructure Sectors of Transition Economies," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 5-26, March.
  9. Chris Nash & Tom Sansom, 2001. "Pricing European Transport Systems: Recent Developments and Evidence from Case Studies," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(3), pages 363-380, September.
  10. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  11. Freebairn, John, 1998. "Access Prices for Rail Infrastructure," The Economic Record, The Economic Society of Australia, vol. 74(226), pages 286-96, September.
  12. Armstrong, Mark & Vickers, John, 1998. "The Access Pricing Problem with Deregulation: A Note," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 115-21, March.
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