A network bypass model of cook strait ferries*

Abstract

This paper investigates whether or not deregulation and privatization lead to an increase in welfare for the narrowly defined market of ferry passenger service across Cook Strait, New Zealand. The model investigates the relationship between price competition, product differentiation and the duplication of fixed costs. We argue that high post entry prices are best interpreted as a symptom of product differentiation rather than collusion. A justification for deregulation and privatization that does not depend on regulatory failure is provided.