Infrastructure Competition between Air Transport and Hsr: Modelling and Numerical Analysis for Beijing-Shanghai

Regulating infrastructure competition between air transport (air) and high-speed rail (HSR) services is complicated since both profit and welfare should be considered when setting the air congestion toll and rail access charge, also taking the effects of those on travel fares into account. This study develops a game theoretic model that derives the charges (set by the regulators) and fare prices (set by the operators) as well as the associated profit and welfare in equilibrium. Key analytical insights concern the joint effect of the airport congestion toll and the profit/welfare orientation of the HSR regulator. In all circumstances, a higher toll leads to a higher air fare, as expected. If the HSR regulator is sufficiently profit oriented, then it will exploit its improved competitive position by setting a higher rail infrastructure charge, leading indirectly to a higher rail fare and reduced consumer welfare. However, to avoid a (large) welfare reduction, a more welfare oriented HSR regulator may reduce the rail access charge in response to a higher airport congestion toll, so that the rail operator is less inclined to increase the rail fare. Further analytical results also highlight that the airport congestion toll and the profit/welfare orientation of the HSR regulator should not be considered in isolation. We also explore these effects numerically in a case study for the Beijing-Shanghai route.