6. COMPETITION (2)



Readings for Lecture 6
•Tomeš, Z., Kvizda, M., Jandová, M., & Rederer, V. (2016). Open access passenger rail competition
in the Czech Republic. Transport Policy, 47, 203-211.
•Hunold, M., & Wolf, C. (2013). Competitive procurement design: Evidence from regional passenger
railway services in Germany.
•Preston, J., & Almutairi, T. (2013). Evaluating the long term impacts of transport policy: An
initial assessment of bus deregulation. Research in transportation economics, 39(1), 208-214.
•

Learning Objectives
•Advantages and disadvantages of open access rail competition x competitive tendering
•Open access rail services in Central Europe
•Competitive tendering of regional rail services in Germany •Competition on the market x
competition for the market in British bus industry
•

6.1 Competition in the market – Railways, Czech Republic



Czech railway passenger market
1995
2000
2005
2010
2015
Passenger-
Kilometers
(billions)
8.0
7.3
6.7
6.6
8.3
Modal Share of Railways
(%)
10.8
8.3
7.3
7.5
8.6
Private Operator’s
Market Share
(%)
0.0
0.0
0.1
0.2
5.0
Source: Eurostat

Public and commercial services
•All regional services are PSO; financed by regions;
•     2009 – 2019 direct awarding of all services to ČD
•Long distance services
•     - semi-fast trains – PSO; direct awarding to ČD
•     - IC trains – commercial services of ČD
•     - open access on two mainlines
•             2011: Prague – Ostrava – (Slovakia/Poland)
•              2016: Prague – Brno – (Vienna/Bratislava/Budapest)
•
6

Geography
7
Zeleznice-hustota Zeleznice-hustota
Prague
Brno
Ostrava
Plzeň
Pardubice
Olomouc
*  densiiy of rail passenger flows; year 2009
Source: ČD

Open access on Prague - Ostrava
•Before September 2011 → high density of traffic, low intermodal competition, two brands of ČD
services – SC (Pendolino), IC (standard), high fares, subsidies, no competition
•September 2011 → withdrawal of public subsidies; the open access entrance of the first private
competitor RegioJet
•January 2013 → the entrance of the second private competitor LeoExpress
•2011 - 2018 → intensive price and non-price competition of the operators
•
8

Service differentiation
•
•

Frequency
* daily, one-way


Prices
11
•
* CZK per one way ticket

Interurban fares above 300 km: peak single (PPP-adjusted fare EUR per km); 2015
12
Source: EC (2016)

Passengers
13

 ČD SC
 ČD IC
Regiojet
LeoEx
TOTAL
2010
1,3
2,3


3,6
2011
1,3
2,3
0,1

3,7
2012
1,1
2,1
1,1

4,3
2013
1,0
1,8
1,5
0,7
5,0
2014
1,2
1,5
2,4
0,9
6,0
2015
1,3
1,5
3,0
1,1
6,9
2016
1,3
1,6
3,1
1,1
7,1
2017
1,4
1,7
3,3
1,1
7,5
* millions; own estimation

Propensity to travel by rail (2014) and its average annual change since 2009
14
Source: RMSS 2016
(p-km per year per inhabitant)

Market shares
15

 ČD SC
 ČD IC
RegioJet
LeoExpr
TOTAL
2010
36%
64%


100%
2011
35%
62%
3%

100%
2012
26%
48%
26%

100%
2013
20%
36%
30%
14%
100%
2014
20%
25%
40%
15%
100%
2015
19%
22%
43%
16%
100%
2016
18%
23%
44%
15%
100%
2017
18%
23%
44%
15%
100%

Revenues and profits
2012
2013
2014
2015
Rev
Profit
Rev
Profit
Rev
Profit
Rev
Profit
Regio
246
-76
318
-93
523
-42
718
+41
Leo
11
-78
193
-159
178
-137
258
-84
ČD
19 500
-517
19 900
-1 795
20 723
-865
21 075
-1 395
•mil. CZK
•RegioJet and LeoExpress - data for Prague-Ostrava;
•ČD – data for all Czech passenger rail network

Rolling stock

2010
2011
2012
2013
2014
2015
2016
Average Number of Coaches per Train
8.9
7.2
7.3
7.0
6.7
7.6
7.5
Average Number of Seats per Train
465
408
353
336
333
373
384
Total Daily Capacity
(Number of Seats)
10 687
12 649
11 282
13 437
11 650
14 186
14 594

Timetable
Number of Passenger Trains Departing from Ostrava to Prague on Weekdays (number of trains per hour)


Regulation challenges
•Infrastructure capacity (charges, priority rights)
•Anticompetitive behaviour (predatory pricing)
•Conflicts with PSO operations (priorities, financing)
•Weak regulation
•Tariff integration
19

Assessment
•+ better quality of services
•+ higher frequency of trains
•+ lower prices for customers
•
-strains on infrastructure capacity
•-   conflicts with PSO operations
-tariff disintegration
•

References
•Tomeš, Z., Kvizda, M., Jandová, M., & Rederer, V. (2016). Open access passenger rail competition
in the Czech Republic. Transport Policy, 47, 203-211.
•Tomeš, Z., Kvizda, M., Nigrin, T., & Seidenglanz, D. (2014). Competition in the railway passenger
market in the Czech Republic. Research in Transportation Economics, 48, 270-276.
•
•
21

6.2 Competition in the market – Railways, Central Europe



Introduction
•Open access passenger rail services in Central Europe:
–1) Austria on the Vienna–Salzburg line from 2011
–2) the Czech Republic on the Prague–Ostrava line from 2011
–3) Slovakia on the Žilina–Košice line from 2014.
–
•The paper compares the impacts of open access entries on the development of national railway
markets. The comparison consists of:
1)entry barriers
2)business model
3)market developments
4)regulatory challenges
•

Railway passenger market

Austria
Czech Republic
Slovakia
Area (1000 km2)
84
79
49
Population (million)
8.5
10.5
5.4
Length of railway lines (th. km)
5.1
9.5
3.6
Share of electrified lines (%)
70
34
44
Passenger-killometres (billion)
12.0
7.6
2.6
Fare box revenue as % of TR
56
50
33
PSO as % of total services
71
93
91

Open access services in CE (2018)



Access charges

InterCity
Suburban
Freight
Austria
4.2
2.0
3.4
Czech Rep.
1.2
0.6
3.4
Slovakia
1.8
1.6
2.8
EUR/trainkm

Frequency

2010
2012
2014
2016

2018
Austria
(Vienna–Salzburg)
ÖBB 37

ÖBB 37
 WB 13
ÖBB 35
 WB 14
ÖBB 35
  WB 15
ÖBB 35
  WB 29
Czech Republic
(Prague–Ostrava)
ČD 23

ČD 22
RJ 10

ČD 19
RJ 9
LE 7
ČD 21
RJ 10
LE 7
ČD 19
 RJ 11
  LE 6
Slovakia
(Žilina–Košice)
ŽSSK 20
ŽSSK 18
ŽSSK 16
      RJ 2
     LE 0
ŽSSK 16
      RJ 8
     LE 1
ŽSSK 19
RJ 3
LE 2
Daily train departures; one-way

Market effects

∆ Prices
∆ Ridership
∆ Revenues
∆ Frequency
(proxy for
∆ Costs)

Austria 2010–2016
Vienna–Salzburg
−(20..25)%
+(20..25)%
-10%..0%
+35%
Czech Rep. 2010–2016
Prague–Ostrava
−42%
+97%
+14%
+65%

Profits
mil. EUR

2012
2013
2014
2015
2016
WESTbahn
−23.5
−14.5
−10.3
−5.4
-8.7
RegioJet
−2.8
−3.4
−1.6
+1.5
n.a.
LEO Express
−2.9
−5.9
−5.1
−3.1
-4.2

Regulatory challenges
•The need for dedicated regulator
•Predatory pricing
•Conflicts between OA and PSO services
•No tariff integration
•Infrastructure capacity around big cities
•
•

Conclusions
•Demand → undoubtely positive impact of open access services (innovations, marketing, frequency,
quality, prices, ridership)
•Supply → questionable/negative impact of open access services (rising unit costs, stagnating
revenues, financial losses, cherry-picking, long term sustainability)
•Regulation → significant challenges (vertical structure, infra capacity, priority rights,
operators disputes, predatory pricing, anticompetitive behaviour)

References
•Tomeš, Z. – Jandová M. (2018): Open access passenger rail services in Central Europe. Research in
Transportation Economics. 2018. In print

6.3 Competition for the market
Hunold, M., & Wolf, C. (2013). Competitive procurement design: Evidence from regional passenger
railway services in Germany.

Introduction
•We study competitive awarding procedures of short haul railway passenger services in Germany from
1995 to 2011 by means of a newly collected data set. In particular, we use regression techniques to
investigate:
• the determinants of the number of bidders,
• the identity of the winning bidder,
•the subsidy level.

Germany regional tendering
•Competitive tendering of regional railroad passenger services in Germany has developed since the
liberalization of the railroad sector in 1994.
•The central goal is to implement a decent level of service quality, while keeping public subsidies
at a low level.
•Towards this, an intermediate goal is to induce entry of new operators that provide alternatives
to the still dominant operator DB Regio.
•This operator is not only the incumbent of most transport services, but is additionally integrated
with the network operator in the publicly owned holding Deutsche Bahn AG (DB).
•Reinforced by substantial asymmetries between the incumbent and the entrants, designing awarding
procedures that attract an adequate number of bidders and select the most capable one remains a
challenge.

Development of the awarding procedures



Hypotheses
•The identity of the winning bidder
•The number of bidders in competitive awarding procedures
•The subsidy levels

The identity of the winning bidder
•Hypothesis 1. DB is more likely to win when profit risks are high.
•Hypothesis 2. DB is more likely to win if used vehicles are admitted.
•Hypothesis 3. DB is more likely to win if no financial support for new vehicles is offered.
•Hypothesis 4. DB is more likely to win a contract if the contract volume is large.
•Hypothesis 5. DB is more likely to win a contract if it is the incumbent.
•Hypothesis 6. DB is more likely to win a contract if the number of bidders is low.
•

The number of bidders
•Hypothesis 7. The number of bidders is higher if less other awarding procedures take place at the
same time. •Hypothesis 8. The number of bidders is higher if a) DB has fewer competitive advantages
and b) the contract duration is higher.

The subsidy level
•Hypothesis 10. The resulting subsidy level is lower if the number of bidders is higher.
•Hypothesis 11. The resulting subsidy level is lower for net contracts.
•Hypothesis 12. The required subsidy level is lower if the network length and frequency of service
increase.
•Hypothesis 13. The required subsidy level is lower if a) used vehicles are admitted and b)
financial support for new vehicles is offered.

Data



The identity of the winner



The number of bidders



The subsidy level
•


Differences between competitive and direct awarding (mean comparison)



Summary
•We find that there are more bidders when the contract duration is high and the revenue risk low.
The dominant operator is more likely to win contracts if it is the incumbent, the network is large,
the contract duration is high, when used rolling stock is admitted and when there are few other
bidders.

6.4 British buses
Preston, J., & Almutairi, T. (2013). Evaluating the long term impacts of transport policy: An
initial assessment of bus deregulation. Research in transportation economics, 39(1), 208-214.

British bus reform
•Local buses in Britain, outside London, were ‘deregulated’ in 1986 (competition on the market)
•By contrast, in London, the 1984 London Regional Transport Act introduced a system of
comprehensive tendering (competition for the market)
•This paper examines the long term impacts of these changes.

Demand



Supply
•


Fares



Costs



Subsidy
•


Key changes
•


Conclusion
•It is found that outside London, bus demand declined strongly, at least up to the year 2000 and
some of this reduction can be ascribed to deregulation. By contrast in London, demand has generally
been increasing.
•However, in both areas operating costs also declined strongly, again up to 2000, but since then
there have been strong increases in costs and subsidy. Our initial finding is that there are net
welfare increases both outside and inside London, but with welfare increases per capita being five
times greater in London than elsewhere.
•However, sensitivity analysis shows that our results are sensitive to the specification of the
modelling system and assumptions made concerning the counterfactual, particularly for the results
for London.

6.5 Summary



Summary
•Open access passenger rail competition has undoubtely positive impacts on demand, however
qustionable impacts on supply and creates significant regulation challenges •Competitive tendering
of rail services enables to decrease total subsdies, howegver the design is critical •Competition
for the market seems to work better for British buses than comeptition on the market

Readings for Lecture 7
•Reform of the Railway Sector and its Achievements  - Network Industries Quarterly - Vol 18 - No 4
(December 2016) •Preston, J., & Robins, D. (2013). Evaluating the long term impacts of transport
policy: The case of passenger rail privatisation. Research in Transportation Economics, 39(1),
14-20.
•