Intramodal Competition Research Articles

Long-distance rail in Europe: Comparing the forms of head-on competition across Europe

Europe is finally entering a season of liberalisation in the long-distance rail passenger market, which takes the form of on-track competition among public and private operators. The paper provides a broad-scope comparison of relevant European markets, belonging to liberalised and non-liberalised countries, aiming to point out the patterns in terms of supply, competition model and prices. The paper is based on a sample of heterogeneous 69 city-pairs, analysed in two fourteen days periods in 2019 (May/June and November). All available modes are observed, collecting info on companies, frequency of services, and cheapest price. The analysis starts from a schematisation of different business models, based on literature. Then, using the database, we study the country's supply structure, size, and level of intermodal and intra-modal competition through HHIs. Prices are analysed in two steps: the average prices and the price dispersion, searching for their main determinants, including but not limited to competition. Results show that a higher competition level is not always corresponding to low prices, which are instead determined by many other factors such as size of market, demand, socio-economic characteristics, subsidies, production costs, speed advantage, strength of the incumbent, etc. The competition level, instead, directly influences the quality, the supplied capacity, and the price dispersion.

An alternative regulatory approach for long-distance passenger rail services: An explorative analysis with a focus on Germany

Regulatory efforts to introduce effective intramodal competition to the rail sector, in particular to the long-distance intercity market segment, have so far been only marginally successful in Germany. This stands in stark contrast to some other EU member states such as Italy, Sweden, Austria, the Czech Republic, Slovakia, Spain and, most recently, France. In 2019, the year before the outbreak of the ongoing Coronavirus pandemic and 25 years after Germany’s fundamental 1994 ‘Bahnstrukturreform’ (structural reform of the railway system), which eliminated the legal network monopoly of former Deutsche Bundesbahn for passenger transport services, the combined market share of all competitors for long-distance passenger services was still marginal at 4 per cent (Bundesnetzagentur, 2021a, 26). By contrast, its competitors’ market shares stood at 28 per cent for short-distance (regional) services – where a competition for the market regime had been established – and at 54 per cent in the rail cargo segment – which is governed by an open access regime. In this paper, based on a comparative institution analysis, we explore an alternative regulatory regime to substantially increase effective intramodal competition in Germany’s intercity rail passenger market: open access to the incumbent’s seat inventory. Our main finding is that, compared to the existing yet ineffective open (track) access regime, our proposed alternative considerably reduces entry barriers for newcomers and simplifies regulatory oversight given the specific features of Germany’s railway market.

A shadow price approach examining service quality in a heavily captive U.S. freight transportation market: The case of grain transport

The aim of this study is to examine modal usage for shippers with limited transportation options to assess rail and truck quality of service. While service quality is an important consideration in shippers' mode choice decisions, freight studies often assume that shippers minimize total transportation costs subject to shipping rates. We test the cost minimization hypothesis using data on wheat shipments for individual grain elevators in the U.S. Great Plains where shippers are limited to rail and truck services with no direct access to navigable waterways, and find that shippers use a higher share of rail than they would if shipping rates alone determined their use of rail. This observation, in tandem with recent shipper surveys showing higher than expected ratings of service quality, suggests that shippers’ modal choice of rail likely stems from a perception of higher quality of service provision. Moreover, this suggests that railroads have provided high service quality despite perpetual captivity concerns. Our results support the idea that even in markets with limited intermodal competition, other types of competition, including geographic, product, and intramodal competition are sufficient to compel railroads to provide a level of service that meets or exceeds expectations.

Effects of open access competition on prices and frequencies on the interurban railway market: Evidence from Europe

This paper explores the effect of competition on prices and frequencies for the Interurban rail market in Europe. Intramodal competition is assessed by the Herfindahl-Hirschman Index (HHI). Intermodal competition takes into account new types of service such as coach and carpooling services. The originality of the analysis stems from the method and database used. The results show that intra-modal competition has a significant impact on frequencies but not on economy class prices because of oligopolistic organizations (duopoly). In addition, the effects of intermodal competition are limited mainly because of considerable differences between services in terms of travel time, comfort and users' preferences.

Competition in long distance transport: Impacts on prices, frequencies, and demand in the Czech Republic

This article analyses the effect of different entry regulations on company conduct and traveller behaviour. The paper presents a comprehensive case study of three railway markets with significantly different entry policies using data on prices and frequencies together with a survey conducted to obtain revealed preferences. The study employs data from the three main lines in the Czech Republic. The two open access markets tended to provide significantly higher connection frequencies than the line with regulated entry did. Surprisingly, low price variation across the rail and bus markets suggests low monopoly power for the monopolised incumbent and its uniform price strategy across markets with different entry regulations. On the other hand, high price sensitivity among travellers confirms the importance of intramodal competition.

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

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.

Quality Competition at the Competitive Margin in US Residential Broadband Markets

This paper investigates the effects of local market structure on residential broadband service quality. Using data from multiple sources, we build a rich panel data set covering all broadband services available, by ISP, technology and maximum advertised download speed for each of approximately six million populated U.S. census blocks between December 2014 and December 2017. In contrast with the previous literature, we utilize highly disaggregated data, control for evolving government subsidies to underserved census blocks, employ individual provider quality measures rather than market-level indexes, and relax strong statistical and economic assumptions maintained in prior work. We estimate causal effects by constructing a novel set of plausibly exogenous instruments exploiting spatial technological variation among incumbent and entrant broadband ISPs. These allow us to identify the effects of entry of new ISPs on service quality for residential customers in spatially disaggregated local markets. Preliminary results suggest that these effects can be substantial, and that intramodal competition (across broadband service technologies) is a primary competitive margin driving improvements in maximum U.S. residential broadband speeds. We find that entry or exit by wireline competitors in census blocks containing only incumbent wireline competitors has essentially no impact on maximum download speeds offered by wireline ISPs. By contrast, entry or exit by wireless competitors in census blocks containing other wireless incumbents is associated with large changes in maximum download speeds offered by wireline ISPs.

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

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.

Customer segmentation strategy for rail freight market: The case of Turkish State Railways

Deregulation in rail transport sector is creating new challenges for rail freight operators due to the new competitive environment, which is characterized by strong cost pressures and high expectations of customers. The level of cost pressure and expectations of customers might vary from segment to segment of the customers. Thus, in the light of different customer needs, differentiated segment strategies should be designed to compete with the new comers. Deregulation process has just started in the Turkish rail market with the new law recently entered into force in order to comply with the EU Directives. In the process of deregulation, the rail transport service providers can use customer segmentation in order to effectively apply differentiated marketing to certain target groups. This paper examines how the incumbent rail service provider (Turkish State Railways) could segment rail freight traffic customers (shippers and forwarders) based on their perceptions and expectations to cope with intra-modal competition to be faced in the future liberalized market. Six behaviourally distinct customer segments were identified. A multi-method approach consisting of desktop research, in-depth interviews, focus group meeting and cluster analysis was applied in this study.

Workshop 3 report: Market initiative regimes in bus, coach and rail: Recent developments, threats, developing paradigms and regulatory needs

This paper synthesizes evidence from Workshop 3 ‘Market initiative regimes: experience and measures to improve performance’ of the 15th International Conference on Competition and Ownership in Land Passenger Transport. This workshop discussed the growing importance of market initiative regimes in public transport focussing on the market and regulatory developments in three sectors: local and regional bus, long-distance coach and passenger train services. The comparison of these sectors illustrated impressive but also very substantial differences between countries in terms of market potentials, success of market initiative, regulatory paths taken and resulting performance.Various observations were made. The size and stratification of passenger transports markets in most countries or regions studied seemed to leave little room for direct intramodal competition, while there was more trust in the viability of intermodal competition. The lack of data was perceived to be a major issue, not only for research but also for market transparency and well-functioning. The development of new intermediaries for information and ticketing purposes seems to point at a possible gradual replacement of the ‘old’ public transport integration dogma with some new paradigm. There is still a lack of academic studies focussing on the process leading to demand and supply of regulation of market initiative regimes and of studies looking subsequently at the factors leading to the uptake of such regulatory tools or at the practical requirements for such specific regulations to function.

The development of international passenger rail services from 2007 to 2016: The case of Switzerland

Over the past twenty years, the European Union has been undertaking important rail reforms to boost the growth of rail traffic. Yet this is often presented in the literature as if the outcome of these reforms is rather modest. Drawing on a case study of Switzerland, this paper aims to look more closely at this discourse by examining the ways in which international passenger rail services (IPRS) are organized, how they perform and what factors influence their performance. Our findings stress that the development of IPRS has been somewhat more positive. Overall, service quality has increased, with more direct connections increasing their frequencies and shortening travel times, and night trains to southern and eastern Europe still being maintained. Nonetheless, IPRS are still not exploiting the full potential of the market due to a lack of market attractiveness, inconsistent service quality, high production costs, complexity, uncertainty and risks. IPRS are basically operated in accordance with three business models: the cooperative production model, the joint venture model, and the intramodal competition model. Our paper also suggests that the characteristics of these business models may have different degrees of impact on the development of IPRS.

Analysis of Intermodal and Intramodal Competition in Freight Transport Market between Turkey and Europe

In this paper, we investigate the degree of competition between alternative ro-ro lines operating between Turkey and Europe (intramodal competition). We also aim to analyze whether the land (road) transport is a significant substitute for the ro-ro transport for the trade between Turkey and Europe (intermodal competition). This paper is a part of the economic analysis which we carried out for defining the relevant market in a case in which the Turkish Competition Authority (TCA) investigated the predatory pricing behavior of UN Ro-Ro Isletmeleri A.S. (UN Ro-Ro) in 2012. The analysis consists of two stages: We first estimate price elasticities of demand for ro-ro lines by using a logit demand model with firm-level data. Then, ‘full equilibrium relevant market’ (FERM) test which is a more developed version of the hypothetical monopolist test (HMT) is used in order to run several hypothetical merger simulations for measuring intramodal and intermodal competition. The results show that the relevant market incorporates only seven ro-ro lines, not land transport.

Pricing strategies: who leads and who follows in the air and rail passenger markets in Italy

ABSTRACTIn this paper, we aim at empirically uncovering the existence of price leadership in the passenger transport market, whose oligopolistic structure facilitates the strategic interaction among companies, with price being one of the principal elements of competition. The strategic interaction is particularly favoured by the fact that prices are easily observable online by all competitors. The analysis focuses on selected Italian city-pair markets that differ from one another with respect to the degree of inter- and intra-modal competition and to the characteristics of the transport services provided. We exploit this heterogeneity to study transport operators’ strategic interactions in different competitive environments. We find evidence of the existence of price leadership, even though results differ across city-pair markets. In particular, it emerges that the incumbent operator, in either the air or the rail sector, always holds the role of leader.

Factors influencing prices and frequencies in the interurban bus market: Evidence from Europe

We analyze the determinants of prices and frequencies in the interurban bus services (IBS) market. Drawing on data collected from a sample of routes in six large European countries, we find that intramodal competition is based on frequencies while intermodal competition is based on prices. Furthermore, we provide evidence of the regressive nature of the IBS in Europe by showing that routes with low-income endpoints face higher prices. We also find significant price differences between countries, which can be attributed to differences in their respective regulatory systems.

Competition For Versus In the Market of Long-Distance Passenger Rail Services

AbstractThis paper is aimed at evaluating the net gains and trade-offs at stake in implementing the competition of the rail mode in the long distance passenger market either by means of franchise or by an open access mechanism. We simulate the outcomes of competitioninandforthe market using a differentiated-products oligopoly model allowing for inter- and intra-modal competition in a long distance passenger market. Specifically we first calibrate the model using data describing high speed lines in France and show that the incumbent railway operator’s strategy does not simply boil down to a short-term profit maximization (e.g. because of existing regulation or limit-pricing strategy). This yields two important results when simulating competition. First, whether it isfororinthe market, the opening to competition does not guarantee a decrease in prices in favor of passengers. Second, the effects of opening up to competitionforthe market are relatively predictable and potentially positive, while those of opening up to competition in the market remain very uncertain.

Rail freight development in Europe: how to deal with a doubly-imperfect competition?

The development of rail freight is central to the European Union's transportation policy. As it has been the case for road and air transport and for other network industries (e.g. energy and telecommunications), deregulation and market opening have been the main policy options chosen by EU to promote rail freight. But rail freight is still facing a doubly-imperfect competition. On one hand, the intermodal competition is off balance between road and rail. On the other hand, intra-modal competition between railway operators is imperfect. Railway operators are not all alike, major companies exist and they play a structuring role that regulation must take into account. According to the HHI (Hirschman Herfindahl Index) the market structure is still characterised by a strong concentration. Therefore, the key roles played by the major companies as well as, in some countries, the remaining action of the state, have to be addressed, since both of them represent some of the key features of imperfect competition in the rail sector. Numerous entry barriers remain and market power manifest itself in many areas of rail freight. This should be given special attention by regulators or competition authorities. National regulators should also communicate with one another, as they will be confronted with major companies’ market power.

Cable Market Power: The Never Ending Story of Consumer Overcharges and Excess Corporate Profits in Video and Broadband

The never ending story of the abuse of cable market power in the multichannel video programming distribution (MVPD) and the broadband Internet access service (BIAS) markets involves the central themes of communications policy over the past fifty years. Public policy must create the conditions for competition and entry. However, the economic characteristics of communications networks make it extremely difficult for workable competition to grow and inevitably lead to the abuse of market power, if regulation is too light or deregulation is premature. Cable TV needed policies like local franchises and guaranteed access to programming under the compulsory license §111 of the 1976 Copyrights Act to get off the ground. Cable quickly became the dominant video transmission and Congress twice deregulated cable long before competition existed. Cable abused its market power to raise consumer prices and prevent entry of new video distribution systems, like head-to-head (intramodal) competition from overbuilders and intermodal competition from new technologies like satellite (intermodal competition). Today, cable operators and broadcasters team up to vigorously resist the entry of Internet-based competition and consumers still suffer from the billions of dollars of overcharges as a result. Internet-based cable operators like Filmon, who are the best hope for competition, qualify for the same compulsory license that wireline cable operators have used for four decades.

Comparison of Three Models for Introducing Competition in Rail Freight Transport

Though European rail policies are aiming to introduce intra-modal competition in the railway sector, there are different ways to introduce intra-modal competition in the rail freight transport. This study compares three models for introducing competition in rail freight transport in the three countries; the UK, India, and Japan. The three cases show that there are different types of intra-modal competition in the freight rail transport. This study briefly explains the models adopted by each of the three countries for introducing competition in the rail freight sector and investigates the advantages and disadvantages of each. The comparison among the three cases shows that a certain type of intra-modal competition cannot be applied to another country necessarily since the background and characteristics of the rail transport market vary depending on the countries.

A model of internal and external competition in a High Speed Rail line

This paper is a contribution to evaluate structural and behavioral changes in railway passenger markets. The novel elements of our analysis are the following: (i) the consideration of inter-modal and intra-modal competition, (ii) the presence of public and private operators, and (iii) endogenous service frequency. After calibrating the model using actual data from two Spanish High Speed Rail lines, simulation exercises allow us to conclude the following. Privatization, whether entry occurs or not, would prompt an increase in prices and a reduction in the number of train services, eventually leading to welfare decreases, as compared with a regime where the incumbent rail operator remained public. Entry is found to be welfare improving only when it generates large increases in traffic. Otherwise welfare losses would materialize even though entry raised some efficiency gains.

The impact of market opening on the supply of interregional train services

A stepwise deregulation of all interregional passenger rail services in Sweden was legally completed in 2010. The incumbent operator (SJ) thereby lost the sole rights to commercial services. The most evident supply increase is the establishment of services in the low-cost niche, which rather complements than competes with the incumbent’s supply. Public Transport Authorities’ (PTAs) joint services have however resulted in strong competition on at least one main line.Despite a period of almost five years since deregulation, the potential effects of the market opening have not yet fully materialised. The business risk for commercial rail operators seems to be much greater than for other modes like air and long distance coach services. SJ have also during decades of deregulated intermodal and years of intramodal competition developed their products and skills and seem well prepared for competition.