Competition between High Speed Rail and Conventional Transport Modes: Market Entry Game Analysis on Indian Corridors

Abstract

This paper investigates the competition between HSR and the incumbent with vertical service differentiation for Indian corridors. As Indian government plans to invest in this new technology, strategic decisions pertaining to type of corridor, speed of HSR, HSR technology, given the competition scenario on that corridor becomes vital. The strategic interactions between the operators are modelled as a three staged game between the entrant and the incumbent considering the competition over fare and frequency to maximize different objective functions i.e. Profit and Social Welfare. Speed of HSR is taken as a strategic variable in the game with two levels of high speed, {Low-H, High-H}. This model is applied on two corridors of India of different length i.e. Bangalore-Delhi (competition with airlines with length of corridor being 2400 km) and Bangalore-Mysore (competition with bus with length of corridor being 150 km). Revealed and stated preference surveys are conducted for the passengers traveling on these corridors and a discrete choice model was estimated for both the corridors. These models were used to determine the modal share in the new hypothetical scenario which were in turn used in defining objective functions such as profits and social welfare. Various game scenarios characterized by sunk and variable cost of the modes are formulated and equilibrium for all demand levels is computed for both the corridors for these different objective functions. Results demonstrates variation in Nash equilibrium for different game scenarios and hence indicates the importance of incorporating speed as a strategic variable. Changing the objective function to social welfare maximization results in different equilibrium solution for Bangalore-Delhi corridor. Thus, impact of different combinations of demand, cost structures and objective functions are explored on the market equilibrium thereby providing interesting insights in this area.