Use of combinatorial auctions in the railway industry: Can the “invisible hand” draw the railway timetable?

Rail capacity is currently administratively allocated in Europe, whereas the economic literature has often contemplated the opportunity of introducing market mechanisms, auctions in particular, into this industry. This article tries to fill the gap between practice and theory. It first describes the properties of rail capacity (rigidity and non-homogeneity) and shows that because of its very nature, this capacity must be allocated through combinatorial auctions. As identified by the economic literature, using combinatorial auctions introduces a lot of complexity (winner determination and information burden) into the allocation process. To deal with this complexity, some form of centralized planning is necessary to design the right market mechanisms and to allocate capacity. This could have strong consequences on the current deregulation process.