Railway deregulation in the west and east : the impacts of organizational structure patterns on air-HSRs competition

Abstract

In the context of railway deregulation in the West and East, introducing competition (through open access) to railways can be achieved via different organizational structures. Using game theoretic method, this is the first attempt to model three organizational structures, namely, full separation, holding, and full integration, and to investigate their impacts on air-HSRs competition. Analytically and numerically (based on the Beijing-Shanghai route), for a profit-oriented HSR infrastructure, a holding structure helps HSR to compete most effectively with air, delivering the highest profits for the HSR competitor and the HSR industry. Compared with other structures, a full integration structure produces the highest market share for the HSR incumbent and HSR consumer surplus, resulting in predatory pricing against the HSR competitor. Moreover, integration leads to strong economic incentives for the incumbent to implement limit pricing to dislodge entry. These results provide an elucidation for the puzzle of why railway deregulation in the Chinese market has lagged compared with that in Europe. Further sensitivity analysis shows that the regulation of the access charging regime has an effect on the impact of the organizational structure in which a welfare-oriented regulation should be coupled with a profit-oriented structure such as full separation. In general, each structure has pros and cons, and different authority goals (promote modal shift, increase competition, improve welfare, etc.) and statuses serve as a prerequisite for choosing the optimal structure.