Scandinavian Working Papers in Economics

Working papers in Transport Economics,
CTS - Centre for Transport Studies Stockholm (KTH and VTI)

No 2011:19: Comparing three models for introduction of competition into railways – is a Big Wolf so Bad after all?

Chris Nash (), Jan-Eric Nilsson () and Heike Link ()
Additional contact information
Chris Nash: University of Leeds, UK, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Jan-Eric Nilsson: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Heike Link: DIW, Berlin, Germany, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

Abstract: This paper compares the experience of three European countries with long experience of competition in rail transport – Britain, Sweden and Germany. Britain is characterised by complete separation of infrastructure from operations, competition either for or in the market for the entire passenger network, open access for freight with two large operators and several smaller ones, strong regulation and careful attention to financial incentives. Sweden also has complete vertical separation, competitive tendering for all subsidised services, open access for freight and now also for commercial passenger services. Regulation, although now strengthened, is not as tight as in Britain. At the other extreme, Germany still has the dominant operator and the infrastructure company as subsidiaries to the same holding company, the regulator has had repeated disputes regarding their powers and – although there is some tendering of subsidised passenger services and open access for commercial passenger and freight – the incumbent still dominates the market. According to the general expectations of theoretical reasoning, we would expect the British approach to be the most successful in achieving an efficient, competitive rail system, with Sweden next and Germany least successful. But an examination of subsidy levels and trends in passenger and freight traffic finds that Germany has the slowest growth in public financial support for its railway as well as the lowest fares. Both Britain and Sweden have had faster growth in public financial support than Germany, although this has mainly been in infrastructure renewal and enhancement, and there has been debate as to the adequacy of current infrastructure spending in Germany. On most measures, Britain has lower absolute levels of financial support than Germany as well as faster traffic growth. Sweden clearly has much higher financial support, although this may be the result of low population density. Thus on balance it is not clear that the reform process has worked better in the other countries than in Germany, despite initial expectations. Further in depth research on the reasons for these changes in financial support and traffic levels would be needed to reach a more conclusive answer.

Keywords: Deregulation; market opening; vertical separation; railway competition

JEL-codes: D02; H54

19 pages, December 13, 2011

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