Long-distance rail prices in a competitive market. Evidence from head-on competition in Italy

Abstract

Rail liberalisation is far from homogeneous across Europe. Italy, thanks to a process started well before the European deadlines, is now one of the most interesting continental markets, at least limited to long-distance segment. The paper aims at understanding the pricing strategies of the two domestic Italian rail companies, with a focus on price discrimination using traditional methods and yield management. We are also investigating if price levels depend on the type of route and in particular on the presence or absence of intra-modal competition. Methodologically, the paper computes the price-per-km and the price dispersion for about thirty OD pairs in Italy for nearly two years, using observed prices. Routes cover the entire mainland of the country and represent different situations in terms of high-speed/conventional infrastructure and competition. We find that incumbent's prices are higher than the competitors. However, the incumbent is not applying higher prices on non-competing routes. This fact tells us that competition is not the only element ruling the prices, but also demand, capacity, users' willingness to pay, and obviously distance. These considerations are also useful to understand the network-strategy followed until now by the newcomer and what could happen in the future.