Competition



Second Building Block: Market Competition

The second building block of railway industry structure is the degree of competition among suppliers of railway services. Historically, freedom to compete in supplying rail services has been weak or absent from national rail industry structures in most countries, unlike other transport sub-sectors. Road haulage, long-distance coaches, coastal shipping, inland waterway barging, airline passenger and freight—all modes of transport that compete with national railways display higher levels of competition among service suppliers.

No systematic empirical worldwide review of the benefits of competition within the railway sector has been carried out. However, Canadian, American, and Mexican rail freight sectors have substantial parallel competition between railways, reinforced by negotiated and mandatory track access arrangements. These operating conditions are widely accepted among policymakers as factors that contribute to making these railways amongst the most technically efficient and innovative in the world. European countries such as Germany and the UK opened their rail freight markets to competition earliest and furthest and experienced the highest growth in rail freight. In Australia, competition among rail freight providers yielded service and tariff benefits for bulk and intermodal freight shippers. Most countries that have competitively tendered contracts to operate urban or regional passenger rail services also claim significant improvement in value for money. In all cases it is difficult to separate the impacts of competition from the impacts of private participation. However, ample evidence from other service industries and all other modes of transport services suggests that competition, or even the threat of competition, creates incentives thatresult in higher efficiency and quality services than when there is a single, protected supplier.54 Therefore, advocates of rail services monopolies must accept the burden of proof to demonstrate how this serves the public interest.

Worldwide,most railways would claim to operate in ‘competitive’ transport markets because their customers can opt for other transport modes, or alter supply chain sources or destinations to avoid relying on one rail route. Often, archetypal national railway managements raise this point to justify exclusive rights to provide railway service. However, the same argument from the road transport sector—that a national trucking monopoly is justified because it ‘competes’ with rail transport—would be considered absurd by national governments.

Nevertheless, there are countries and circumstances in which exclusive rights to operate rail services may be justified (see ). Moreover, discouraging day-to-day competition does not preclude contestability through competitive bidding for exclusive rights. Two main forms of contestability in rail services are competition in the market, and competition for the market.

    
Copyright ©  The World Bank. All Rights Reserved.