Munich Personal RePEc Archive

Are prices reduced from direct competition in high-speed rail? Some unexpected evidences from Italy

Beria, Paolo and Tolentino, Samuel and Filippini, Gabriele (2020): Are prices reduced from direct competition in high-speed rail? Some unexpected evidences from Italy.

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Abstract

The literature on open-access rail competition has been quite unanimous in pointing out the positive effects of the entry of the (few) newcomers in their respective markets. Generally speaking, quality has increased and frequency too. The effect on prices has also generally been what everybody expected: the newcomer is pricing less than the incumbent and overall the prices on the liberalised market are lower than the counterfactual ones. Without denying all the positive effects that rail competition in Italy has brought since 2012, thanks to the large-scale direct competition of NTV/Italo vs. the incumbent Trenitalia, in this paper we will provide the first evidence of something new, happened in the last 12 months. Since 2018, in fact, while frequencies and passengers continue to grow, for the first time also the average prices started increasing, even in those routes just opened to competition. The scope of this work is limited to analyse everyday train prices in a period of three years on numerous Italian routes, showing how prices changed over time and in particular according to the presence of competition and route characteristics. Findings are interesting: prices do not fall in all routes where competition starts, or at least just for a short period. In general, 2019 saw a consistent realignment of prices to a higher level than 2017-2018, for both competitors. One obvious explanation could be that the competitors are just apparently competing, or that production costs have raised (or both). This would be by far the worst outcome of a liberalisation process: costs up and cartel prices up with the costs. But the same phenomenon could be explained differently if there is no overcapacity: competition is working on parameters different than average prices (quality, frequency, product differentiation, price discrimination). We are still not able to demonstrate the existence of a cartel, so this work is just intended to show what has happened, and not why.

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