Competition in long distance transport: Impacts on prices, frequencies, and demand in the Czech Republic

https://doi.org/10.1016/j.rtbm.2021.100655Get rights and content

Highlights

  • No significant price differences across markets with varying entry regulations.

  • Price doesn't significantly differ across markets with varying entry regulations.

  • Competition had a positive effect on connection frequency.

  • However, connection frequency remained lower on the monopolised PSO market.

  • Intermodal competition increased consumers' price sensitivity.

Abstract

This article analyses the effect of different entry regulations on company conduct and traveller behaviour. The paper presents a comprehensive case study of three railway markets with significantly different entry policies using data on prices and frequencies together with a survey conducted to obtain revealed preferences. The study employs data from the three main lines in the Czech Republic. The two open access markets tended to provide significantly higher connection frequencies than the line with regulated entry did. Surprisingly, low price variation across the rail and bus markets suggests low monopoly power for the monopolised incumbent and its uniform price strategy across markets with different entry regulations. On the other hand, high price sensitivity among travellers confirms the importance of intramodal competition.

Introduction

Open access competition on railways is gradually becoming more widespread, especially after the Fourth Railway Package of the European railway reforms (European Commission, 2016), mostly in Central Europe. The market structure is slowly changing as is passenger behaviour. This ongoing process of deregulation and market restructuring offers a unique opportunity to compare markets with different levels of transformation. The general effect of competition entry on price level, quality of provided services, and frequency is unquestionable.

However, the railway industry has several specifics. Therefore, it is necessary to be careful about the impacts of competitors on the market and demand. First, both intramodal and intermodal competition plays an important role in transport behaviour. Therefore, regulated entry in the case of one transportation mode can be partially offset by deregulation in other transport modes. This is often the case for intercity bus and railroad competition. Furthermore, vertical integration of railways, together with high fixed costs, can make entries socially undesirable. Finally, from the traveller's perspective, rail services will always remain heterogeneous due to such factors as the importance of departure times. Therefore, some non-zero market power always exists and may be challenging to regulate, if desired. For these reasons and some additional issues, open access for railroads remains the subject of ongoing discussion.

The Czech transportation market provides a unique opportunity for cross-section comparison due to the variability of competition across different lines. The markets to compare include the following long-distance transport routes: Prague–Brno, Prague–Ostrava, and Brno–Ostrava. The Prague–Ostrava market has been a competitive open access line since 2011 with the unprecedented competition of three train providers (Czech Railways, RegioJet since 2011, and LeoExpress since 2013). The Prague–Brno market has represented a mixed market since 2016 with both the incumbent providing public service obligation (PSO) services and open access competitor RegioJet operating at its own risk (and also providing bus services via the parallel D1 motorway in competition mainly with FlixBus). Thus, this route is a case of intense intermodal coach and rail competition. The last relevant route, Brno–Ostrava, was operated as a PSO by a state-owned company (Czech Railways). In December 2019, however, the incumbent Czech Railways was replaced on the Brno–Ostrava line by RegioJet for the first time in history. This change is, unfortunately, not captured in our data. Nevertheless, individual transportation remains the only relevant alternative to the train on this route. Therefore, one needs to be careful in any direct comparison of these routes as it lacks public alternatives.1 Moreover, this is the only route in our analysis that is not connecting a city with the capital. This can have some important implications for demand. Regarding individual transportation, the Prague–Ostrava line has no direct motorway connecting the two cities. The competitive intermodal route from Prague to Brno includes a relevant car alternative. However, according to our survey, 92% of both car drivers and their passengers do not use any other transport alternative on these routes. These travellers are thus the least flexible out of all relevant transport modes. Therefore, we included only public transport in our further analysis. Table 1 summarises the main attributes of each transport market.

The aim of this paper is to analyse the effects of different types of railway competition on both firms' conduct and travellers' behaviour using price and frequency information together with elasticity analysis.

We utilised data on prices and frequencies from publicly available timetables and revealed preferences obtained from a survey to compare markets with different entry setups and structures. The case study analyses the three main lines in the Czech Republic with different regulatory frameworks. The lines comprise: a monopolised market, a fully open access market with three railway competitors, and a mixed market including the incumbent contracted as a PSO and an entrant in business at its own risk. This last market is well-known for its tough intramodal as well as intermodal competition.

The rest of the paper is structured in the following way. First, we present a review of the literature on open access entries and their effects on competition and travel behaviour. Then, we clarify the research question and explain the methodology. Descriptive statistics of the consumer survey follow. After that, we present elasticity estimations. Finally, we discuss the results, list the research implications, and provide conclusions.

Section snippets

Literature review

Open access competition on railways means a situation where the market is open, new entrants can enter it, and operations are not subsidised from public resources. Experience with open access competition in passenger railway transport is quite limited – only a few countries have experienced this type of competition. Head-on entries on principal railway routes can be found only in Austria, the Czech Republic, Italy, Slovakia, and Sweden. Several case studies have analysed free entries on

Research question, data, and methods

This section presents the research question and a methodology adequate to answer it.

Exploratory data analysis

The following section shows the overall context of the passenger long-distance transport market in the Czech Republic. It provides an exploratory analysis focused on the frequency of connections, prices, and our survey sample design.

Models and elasticity assessment

This section presents the results of the model estimations and computed elasticities. In our research, the elasticity analysis represents a means of identifying the relationship between the level of competition on the markets and behaviour using revealed preferences obtained through a survey of all analysed markets.

Findings and discussion

The results for prices and frequencies for different entry setups provide, at first sight, a surprising contradiction. First, we observe little variability in price across markets with significantly different market structures. On the other hand, the frequencies vary significantly across markets.

There is almost no geographic price discrimination from the incumbent Czech Railways, i.e. it employs a uniform price strategy across the analysed markets. Together with conditions based on PSOs, this

Research implications

A cross-section comparison of markets with varying entry regulations and competition did not show variability in price level, but did show a clear positive impact of entry on the connection frequency. The monopolised PSO market did not encourage higher connection frequencies in comparison to the more competitive lines. Moreover, consumers' price sensitivity was higher for relevant intermodal competition. The low level of price variability between markets may have had several causes; we tend to

Conclusions

We have provided a comprehensive analysis of the effects of different entry regulations on competition and travellers' decision processes. To this end, we studied three different Czech lines: Prague–Brno, Prague–Ostrava, and Brno–Ostrava. These differed significantly in both railway entry policies and market structure. Moreover, the intense railway competition on the Prague–Brno market was further intensified by intramodal competition with bus alternatives.

Our findings are in line with the

Declaration of Competing Interest

None.

Acknowledgements

This article is the output of the project “New Mobility – High-Speed Transport Systems and Transport-Related Human Behaviour”, Reg. No. CZ.02.1.01/0.0/0.0/16_026/0008430, co-financed by the Operational Programme Research, Development and Education.

References (51)

  • Y. Crozet et al.

    Deregulation of long distance coach services in France

    Research in Transportation Economics

    (2018)
  • H.E. Daly et al.

    Incorporating travel behaviour and travel time into TIMES energy system models

    Applied Energy

    (2014)
  • C. Desmaris et al.

    The HSR competition in Italy: How are the regulatory design and practices concerned?

    Research in Transportation Economics

    (2018)
  • M.I. Droes et al.

    Rail-based public transport and urban spatial structure: The interplay between network design, congestion and urban form

    Transportation Research Part-B Methodogical

    (2015)
  • O. Fröidh

    Perspectives for a future high-speed train in the Swedish domestic travel market

    Journal of Transport Geography

    (2008)
  • O. Fröidh et al.

    Competition on the tracks – Passengers' response to deregulation of interregional rail services

    Transportation Research Part A: Policy and Practice

    (2013)
  • O. Fröidh et al.

    The impact of market opening on the supply of interregional train services

    Journal of Transport Geography

    (2015)
  • C. Gremm

    The effect of intermodal competition on the pricing behaviour of a railway company: Evidence from the German case

    Research in Transportation Economics

    (2018)
  • M. Król et al.

    The rise and fall of Interregio. Extensive open access passenger rail competition in Poland

    Research in Transportation Economics

    (2018)
  • M. Kvizda et al.

    Open access passenger rail competition in Slovakia – Experience from the Bratislava–Košice line

    Journal of Rail Transport Planning and Management

    (2019)
  • D. McFadden

    The measurement of urban travel demand

    Journal of Public Economics

    (1974)
  • N. Paulley et al.

    The demand for public transport: The effects of fares, quality of service, income and car ownership

    Transport Policy

    (2006)
  • Z. Tomeš et al.

    Does the incumbent have an advantage in open access passenger rail competition? A case study on the Prague–Brno line

    Journal of Rail Transport Planning and Management

    (2019)
  • Z. Tomeš et al.

    Open access passenger rail services in Central Europe

    Research in Transportation Economics

    (2018)
  • Z. Tomeš et al.

    Open access passenger rail competition in the Czech Republic

    Transport Policy

    (2016)
  • Cited by (11)

    • Measuring market power of rail incumbents

      2024, Research in Transportation Economics
    • Decision support tools for developing sustainable transportation systems in the EU: A review of research needs, barriers, and trends

      2022, Research in Transportation Business and Management
      Citation Excerpt :

      Finally, synchromodal transport adds the concept of a more reliable and adaptive mode choice, based on real-time information on the current conditions of the transportation system (e.g., actual price, congestion, delays), thus blending together organisation and coordination of the transport chain (Reis, 2015). Despite the specific peculiarities of each term, all these definitions share the same concept, that is the combination of different transportation modes and routing options into an integrated and coordinated door-to-door transport chains with the final aim of improving the overall efficiency of the whole system (Fitzov'a, Kalis, Paril, & Kasa, 2021). Nowadays, globalization, agile manufacturing, speed-to-market deliveries, and effi- cient SCN management are creating greater demand for these combined transportation services (Dotoli et al., 2017).

    • Out of the spotlight: Four years of Italian coach market prices

      2022, Research in Transportation Business and Management
      Citation Excerpt :

      By highlighting the case study of an express coach service operator that was successful at first but eventually suffered due to intermodal competition, they also propose that there must exist a support scheme that is competition-neutral and facilitates a level playing field for all operators. Fitzová, Kališ, Pařil, and Kasa (2021) analyse the effect of different entry regulations on company conduct and travel behaviour. They noticed the increase in frequency as a positive effect but did not notice any significant price variation between the rail and coach markets.

    View all citing articles on Scopus
    View full text