This paper compares and contrasts recent British and Swedish experiences of rail reforms. A key difference relates to the organisation of the infrastructure authority. In Sweden this is a publicly owned body, with access charges based on short run marginal costs. In Great Britain, this is a stock exchange listed company in financial difficulties. Access charges are based on full cost recovery. The result of this is that although infrastructure costs appear similar on a track-kilometre basis, British charges per train-kilometre are almost eight-fold those of Sweden. In both countries, on-track competition in the passenger rail market is currently limited. However, were such competition to be permitted on a wider scale, the extent would be influenced by the level of track access charges. A simulation model has been developed to assess the impact of on track competition and applied to both Britain and Sweden. In Britain, it was found that for main-line inter-city services competition would be largely of a cream skimming variety, with the entrant's trains concentrated at the peak times of the day. Such entry although profitable, would not be beneficial, leading to too much service at certain times. Head on competition and fares competition did not appear to be profitable where infrastructure charges are based on full cost recovery, with the possible exceptions of some route and product competition. By contrast, for a main line inter city route in Sweden, it was found that on track competition would lead to large service increases and significant fare reductions. Although this would represent a welfare improvement on the current situation, it would force a parallel route, currently commercial, into requiring subsidy. Moreover, it would not represent the theoretically optimum configuration as it would also lead to too much service provision. Intriguingly, for this route it was found that a profit maximising monopolist would provide services that were close to the welfare optimum because of competition from the parallel route. Given that infrastructure charges are much lower in Sweden than in Great Britain, a greater proportion of the passenger rail network can be operated commercially. However, in both countries there is substantial off track competition in the form of tendering and franchising. This seems to have been more successful in Britain than in Sweden and reasons for this are examined, including the interaction with the commercial network. It is concluded that there may be some justification for limiting on-track competition in passenger rail markets, although some competition between lines, where railway geography permits, may be beneficial. However, this assumes that on track competition does not promote further product innovation nor act as a spur to further gains in cost efficiency. If such benefits are believed to exist, a licensing system in which entry is considered on a case by case basis might be considered. This option may be particularly relevant for the situation where access charges are based on short run marginal cost. For the covering abstract see ITRD E124693.
Abstract