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

This 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 competition and the 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 is or the market, the opening to competition does not guarantee a decrease in prices in favor of passengers. Second, the effects of opening up to competition the market are relatively predictable and potentially positive, while those of opening up to competition in the market remain very uncertain.