The Efficiency Impact of Open Access Competition in Rail ...
The Efficiency Impact of Open Access Competition in Rail Markets
The Case of Domestic Passenger Services in Europe
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Discussion Paper 2016 ? 07 Lorenzo Casullo
International Transport Forum, Paris, France
The efficiency impact of open access competition in rail markets
The case of domestic passenger services in Europe
Discussion Paper No. 2016-07
Lorenzo CASULLO International Transport Forum
Paris, France March 2016
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Lorenzo Casullo ? The efficiency impact of open access competition in rail markets
Table of contents
Competition in European rail markets...................................................................................... 5 The contestability of rail markets .............................................................................................. 5 Research question and hypotheses............................................................................................. 5 Rail reforms at the EU and national level .................................................................................. 6 Open access competition in domestic passenger markets.......................................................... 9
The efficiency impact of open access competition .................................................................. 11 The emerging evidence on competition impacts...................................................................... 11 The measurement of efficiency impacts .................................................................................. 13 Selecting the appropriate metric .............................................................................................. 13 Data availability and selection ................................................................................................. 14 Econometric technique ............................................................................................................ 14
Summary of Results .................................................................................................................. 17 Descriptive statistics ................................................................................................................ 17 Difference in difference (DID) estimator................................................................................. 19
Discussion ................................................................................................................................... 21 Interpretation of results ............................................................................................................ 21 Contribution to the existing literature ...................................................................................... 22 Limitations and potential further research ............................................................................... 22 A difficult, yet necessary assessment....................................................................................... 24
Conclusions and way forward .................................................................................................. 25 Appendices ................................................................................................................................. 26
Appendix 1 ? Selection of the control group for the DID model............................................. 26 Appendix 2 ? DID regression results....................................................................................... 28 Bibliography............................................................................................................................... 29
ITF Discussion Paper 2016-07 -- ? OECD/ITF 2016
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Lorenzo Casullo ? The efficiency impact of open access competition in rail markets
Abstract
On-track competition in passenger services has traditionally been limited in European railways, with private operators offering marginal services in selected corridors in the UK, Sweden and Germany only. In recent years, a larger scale and more stable wave of open access market entry has occurred in Austria, the Czech Republic and Italy, where open access operators have gained market shares of 20-30% in long-distance corridors.
Economic theory suggests that competition can result in productive efficiencies, although theories of competition are potentially outweighed by market characteristics which make monopoly a more efficient market structure when applied to the rail sector. The contestability of rail markets is further hampered by the presence of several barriers to entry as well as expansion.
The literature on the efficiency effect of rail policy changes is vast, but the focus to date has been on industry structure and competitive tendering, with non-conclusive results highlighting the importance of tailoring rail policies to the specific characteristics of each network. Studies have not yet attempted to measure the industry efficiency impact of passenger open access operations, neither specifically nor systematically ? which is the goal of this paper.
Using a difference-in-difference estimator, we find that on-track competition has not, to date, led to major efficiency improvements across the rail systems affected ? despite claims that new entrants have lower unit costs compared to incumbents. In the early days of market opening when guarantees of non-discriminatory access have not yet been fully established, on-track competition may be resulting in higher costs than in countries with monopoly passenger services.
These results are based on a short timeframe and will need to be tested over a longer period, recognising that competition is a process with no instantaneous effects. An early assessment of market opening policies is crucial to inform future regulatory decisions, at a time of budgetary constraints, forthcoming European reforms under the Fourth Railway Package and growing interest in market entry by new operators.
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ITF Discussion Paper 2016-07 -- ? OECD/ITF 2016
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