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

- We evaluate structural and behavioral changes in railway passenger markets.
- Privatization, despite entry, leads to price increases and train service reductions.
- Privatization, whether entry occurs or not, eventually leads to welfare decreases.
- Entry improves welfare if generates large traffic increases or sufficient efficiencies.

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.