Conditions for effective on-track competition in the European passenger railway market: A yardstick for regulations

Document Type

Journal Article

Publication Date

2022

Subject Area

place - europe, mode - rail, organisation - competition, organisation - regulation

Keywords

Capacity competition, Asymmetric equilibrium, Demand homogenisation, Access charge

Abstract

Upon the liberalisation of commercial, domestic passenger rail services, the strong asymmetry of incumbent and entrant imposes the issue of sustainability of competition. Hence, we model the competition between two asymmetric operators. The model is grounded in empirical facts from EU countries with established on-track competition, aiming to explain the empirical pattern of fares and available seats and provide the regulatory guidelines that enable effective on-track competition in the passenger railway market. Our model represents a duopoly competition in the offered number of seats and prices in which passengers differentiate between incumbent's and entrant's services. The assumptions of the model represent considerable improvements to previous modelling approaches. We assume that asymmetric operators compete in the number of offered seats since the choice of frequencies is not directly under their control. Therefore, the load factor is introduced as a critical element of on-track competition. This setup aims to identify conditions that enable sustainable on-track competition in two critical regulatory issues—demand homogenisation (equal access to infrastructure facilities) and reduction of infrastructure access charge towards the marginal cost. Demand homogenisation, which results in incumbent's and entrant's fares converging, reduction of the average fare, and a larger number of passengers, could be achieved by reducing PSO network in order to enable more space for on-track competition and introducing market mechanism for allocation of commercial service train paths. Concerning access regulation, symmetric reduction of access charges increases the number of available seats on a line. We have also determined that asymmetric access regulation, where entrant pays reduced access charge compared to incumbent, results in a lower number of available seats and a higher entrant's market share than in the case of the symmetric access regulation.

Rights

Permission to publish the abstract has been given by Elsevier, copyright remains with them.

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http://www.sciencedirect.com/science/journal/0967070X

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