Can the ladder of investment approach make on-track competition sustainable in the railway market? A study of asymmetric infrastructure access charges

Abstract

The gradual liberalisation of the EU railway market, which began in the early 2000s, has entered its final phase with the formal opening of national markets for commercial passenger transport. However, the level of competition established in some countries is still not sufficient to increase passenger welfare. Based on the previous experience, this phenomenon stems from high barriers to entry for new operators, such as high sunk costs, relatively high infrastructure train access charges (TAC) for commercial passenger traffic, and competition between asymmetric participants, where the incumbent still dominates the market. One of the solutions to improve the conditions for entry is asymmetric market regulation, used in the telecommunications sector. The asymmetric access regulation is based on lower TAC for entrants than for incumbent for a limited period, which is part of the ladder of investment (LOI) approach. In principle, the current EU regulatory framework requires equal and non-discriminatory TAC for all railway operators which provide similar services in a similar market segment with similar infrastructure quality. Any deviation from this principle must be justified. In practice, infrastructure managers (IM) often charge much higher TAC than the marginal cost of using the infrastructure for long-distance passenger traffic because that market can absorb this higher cost. This does not leave much possibility for entry or survival of potential entrants in the passenger market segment. Therefore, this paper will present a duopoly competition model between asymmetric on-track competitors within the commercial passenger transport market segment. We will explain the pros and cons of the introduction of asymmetric access regulation as an essential package of market entry strategy to establish sustainable competition for commercial passenger railway transport services.