Will the fare be fair? An examination of the pricing effects of the privatization of rail services

Abstract

This paper explores, with the help of a simple linear model, the implications of the proposals for restructuring British Rail within the recently proposed privatization plan. It is particularly concerned with the separation of responsibility for the provision of infrastructure from that for the provision of services, which will create a situation of bilateral monopoly, and the proposals for franchising services to a number of independent operators, creating complementary monopolies. The model predicts that both these changes will lead to higher fares and reduced demand for rail services, largely because individual agents do not take account the effect of their decisions on the other suppliers involved.