Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

Abstract: This article investigates the incentives to unbundle operations and infrastructure in the railway industry in a two-country model with international network effects from the viewpoint of national governments. The analysis shows that the decision to unbundle institutionally or organizationally with separated accounts depends crucially on the importance of cross-border transportation. For a sufficiently high importance of cross-border transportation, national governments choose accounting separation. However, national governments are stuck in a Prisoners' dilemma and would be better off coordinating on a separated industry structure. This result justifies major policy initiatives by the European Union but explains also actions of national governments in implementing these initiatives.

Keywords: Bundling; vertical integration; international competition; railway; regulation; cross-border transport

JEL-codes: F53; L50; L92

19 pages, April 10, 2015

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