Regulation - Case 2

Research project on the competitive effects of alliances between major European rail companies in long-distance passenger transport

In this case, we assessed the competitive impact of a co-operative agreement between major European rail companies and, more generally, the question of how far co-operations between incumbent rail companies may impede effective competition in the long-distance passenger transport segment following liberalisation. The assessment was split into two empirical analyses: First, a panel data analysis was conducted in order to evaluate the impact of intermodal competition on relevant rail routes. In particular, we analysed the impact of entry by low-cost airlines on a specific O&D on the German incumbent rail company's prices, output and revenue figures. The analysis indicated that there is robust evidence for effective competition between low-cost airlines and rail operators affecting first and second class passenger numbers, price revenues, and passenger kilometres to various degrees. The second part of the study consisted of a revenues & cost model simulating the likelihood of entry on individual rail routes in various entry scenarios. We found that in a counterfactual situation without alliances the likelihood of strong intramodal competition emerging is low. High capital costs prevent entry within the high-speed segment of the market where, based on future revenue figures and plausible cost assumptions, profitability cannot be expected. Within such a counterfactual situation, alliances that are limited to routes with a low likelihood of intramodal entry will most likely have no anti-competitive effects.