Open with Care: The Duopoly Model for the Transition to Competition in Long-Distance Passenger Railway Transportation

Abstract

Railways present specific obstacles for the introduction of competition. The duopoly model for the transition to competition makes it possible to overcome some of these obstacles. The granting of a second license allows governments to control the process and exclude opportunistic market entry limited to high-volume routes with high margins. Temporary exclusion of contestability allows the newcomer to achieve the necessary economies of density and scale. Finally, more limited competition allows the incumbent adapting to the new market structure by reducing costs and putting an end to internal cross-subsidies.