Welfare implications of a mixed ownership-operations structure of high-speed train

Abstract

In most European and Asian countries, the owner of the high-speed train (HST) track is either fully independent from, or integrated with, the operations of train service. In this paper, we build a simple model to analyze a particularly unique ownership structure of HST infrastructure, namely, a mixed structure featuring both integration and separation within a network. We compare this mixed case with the scenario where ownership and operations of HST are integrated and identify a conflict between social welfare (consumer surplus) and HST profit. Specifically, consumer surplus and social welfare are higher in the mixed case (compared with the integrated case), while the profit of the HST industry is lower if any of the following conditions holds: 1) the size of the market, where ownership and operations may be separated, is sufficiently small; 2) the weight that the HST operator puts on social welfare is sufficiently small; 3) the fee paid by the infrastructure owner to HST operator for operational services is sufficiently high. Our results prove to be robust when there exists competition from airlines. Additionally, we observe consistent outcomes when varying the weights on social welfare. Finally, several policy implications are discussed.