The effect of intermodal competition on the pricing behaviour of a railway company: Evidence from the German case

Abstract

The market for public intercity railway services still belongs to monopolistic companies in many European countries without considerable intramodal competition. Therefore, intermodal competition is of particular importance for this market. In this paper, we analyse the intermodal competition between intercity buses and railways. In particular, we analyse the price-setting behaviour of the German railway company DB Fernverkehr AG in different competitive situations. Starting from the set of all long-distance connections between the larger German cities with daily train services, the ones with bus services are identified and frequencies are counted. In our analysis, we combine bus and railway data as well as general transport and socioeconomic data. A two-step cluster analysis is used to create homogenous transport markets. Within these clusters, a count data regression analysis is applied in order to analyse the number of special prices offered by DB Fernverkehr AG, as these are the most flexible price instruments of DB. Our results show, among others, that the railway budget prices are lower on routes with intermodal competition compared to monopolistic routes.