Abstract
Abstract It has been a policy proposal since long to vertically separate transport and infrastructure in Germany’s railway sector. The proposal received new momentum, when selling the transport subsidiaries of Deutsche Bahn AG to the public was discussed in 2008 / 2009. While vertical separation is general ly understood to prevent foreclosure and discrimination by the incumbent network- operator, advocates of vertical integration claim separation to have adverse effects on access prices to the infrastructure. We examine the price setting incentives of an integrated and a separated network-operator and compare our results to rough empirical findings on the profitability of the Deutsche Bahn AG infrastructure branches. Theoretical analysis highlights that after separation exceptional mark-ups on access prices to the railwayinfrastructure are feasible only in segments of railway-transport with insufficient competition. We therefore conclude that an economic policy for the railway sector directed on efficient supply and promoting effective competition should unbind itself from alleged price synergies and should press ahead with vertical separation instead.
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