Access pricing of network essential facilities for Chinese railways

Abstract

It is imperative for the further study of pricing infrastructures with network characteristics so as to provide positive incentives for the suppliers of concerning services. Economists such as Laffont, Tirole, etc. developed theories about infrastructure pricing: SAT (stand alone test), ECPR (efficient component pricing rule). Sidak and Spulber have put forward a more practical method for bottleneck infrastructures of gas, railway, and telecommunication. This method is called as M-ECPR (market efficient component pricing rule) on the basis of opportunity cost. In this article, we bring the M-ECPR principles into the study of Chinese railways pricing of its network infrastructures. Combined with our engineer model and opportunity cost model, we analyzed the special conditions faced by Chinese railways and developed a model for sharing infrastructure fees among freight and passenger transportation. Engineer model split variable cost (VC) and fixed cost (FC) of freight and passenger activities, and opportunity cost model takes the insufficient supply of infrastructure capacity into consideration. Of course, the subsidy from the government greatly affected the price standard for bottleneck facilities, or so-called network infrastructures.