Monopoly and Competition in the Rail

This is an automatic translation of original Czech paper “Monopol a konkurence na železnici”

An article published in the journal Scientia et Societas 4/2009.
Historic Railroad Determination
in Europe and after the Second World War, the railway company found mainly state-owned and were usually combined into a national monopoly railway company. This monopolization and state ownership should the performance and profitability of the railroad dire consequences. The railway companies in Europe gradually lost contact with the real market environment. Prices for services are ceased to apply to the costs and become increasingly interfering in the pricing, subsidized losses and guaranteed loans. Railway companies have become rigid, adaptable little giants with low capacity to adapt to changing market conditions. Loss of market forces, railways were to some extent able to compensate by creating a strong rail lobby in relation to the state administration. The bargaining power was strengthened position as a major employer and strong position of trade unions.
The fundamental economic parameters of railway transport, the cost of rail infrastructure. They represent 50-80% of the total cost of the railway business. (DiPietrantonio-Pelkmans 2004) The high cost of construction, renovation and maintenance of infrastructure are the primary cause of total losses of European railways. Infrastructure costs are significantly lower for railways focused mainly on freight (USA, Latin America) than in the railways with a significant share of passenger transport (EU, Japan) because of high demands on safety and comfort of passenger transport significantly more expensive infrastructure investments. High infrastructure costs are then one of the reasons that the ratio of revenues to costs at European railways in the range of 0.35 to 0.65 (Nash 2002). High losses of European railways are covered by state subsidies and an increase in state debt guarantees.
2 The strategy of railway reforms
2.1. Sweden
Sweden is the first country in Europe where it was tested strategy of separation of infrastructure and services. The reform was approached in 1988, the main reason was the poor results Statens Jarnvager State Railways (SJ). The reform divided the original SJ and created a new company Banverket (BV), which became the owner of the infrastructure. BV is thus responsible for investments in infrastructure and its maintenance. Running trains were at the discretion SJ, who does so on a commercial basis without public subsidies, but it is allowed to freely set fares and service levels. (Quinet-Vickerman 2004). The results of the reform were as follows:
Table: Results of the Swedish reform:
Source: Quinet-Vickerman 2004
Increased competitive pressure and higher business efficiency, a lower headcount and a decrease in claims on operating subsidies from the state. The surprising result of the reforms was that not diminished total state subsidy to rail transport, but, on the contrary, they were substantial growth, which was determined by greatly increasing infrastructure investments in Swedish railways. The Swedish railway reform and reduce the total rail traffic demands on public budgets, especially for the reason that the reform process was accompanied by a commitment of the Government in the form of higher subsidies for the modernization of the railway infrastructure.
2.2. United Kingdom
02.03 Germany
The reform program in Germany had a different scenario. There are namely the accounting separation of infrastructure and services, but the market is still dominated by a single operator. Deutsche Bahn were reorganized in 1994, when it was reformed into a stock company, and once debt relief (Kloutvor-SIP-Vorlíček 2001). The aim of the reform was to make a profit Deutsche Bahn in a situation where the operation of passenger services are offered tenders for state subsidies. Accounting is separated, but the separation of the real owner and operator basically not allowing Discriminator behavior. Consequently, the long-haul occurs minimum competition (Holvad et al 2003). The passengers were left regional competition tracks, which are quite successfully developed competition from private and municipal operators.
2.4. France
France is an example of a country where the required reforms have been carried out only formally, with little real impact. Overwhelming proportion of the total volume of rail performance ensures dominant Societe Nationale des Chemins de Fer Francais (SNCF). Relationship network owner Reseau Ferre de France (RFF) and SNCF is determined by SNCF controls traffic management, investment and maintenance is carried out in cooperation with RFF. (Holvad et al 2003). RFF therefore without cooperation with SNCF is unable to secure the functioning of the transport path. However, RFF is essentially an organization functioning more as a regulator than as a manager. Defines the investment policy and infrastructure maintenance but effective control is exercised SNCF, RFF with which concludes the contract. (Quinet-Vickerman 2004). French politics is the principle of introducing competition in rail transport rather reserved through traditional strong state role in the economy, the influence of trade unions and the state stimulated the development of high-speed lines.
2.5. Czech Republic
The Czech Republic took place in 2003 to transform the former Czech Railways, state organization for Czech Railways (ČD). and the Administration of Railway Infrastructure (RIA). The purpose of this transformation was in line with European directives achieve open access to the network and have the RIA as the operator and manager of railway infrastructure and a CD only one of the operators. In the logic of European directives was to enable the creation and development of competition in the operation of railway services. However, as in the case of France, the RIA in security and traffic control dependent on the dominant operator. RIA itself is not able to ensure the functioning of the railway infrastructure. Traffic on the railway track and maintain ČD RIA them pay for security operations on the railway track. Real competition volume is low.
3rd The intensity of competition and efficiency of European railways
Based on these examples, it is possible to identify significant differences in approach between European countries to implement European directives. In most cases, perform the required separation of infrastructure and services. However, in many European countries, the dominant operator is still a considerable impact on traffic management, which allows a greater or lesser extent, determine the conditions of competition.
significantly limited the efficiency of rail reform in Europe is the fact that with the exception of the United Kingdom not to break the monopoly provider of rail services. A typical European reform takes the form of a more or less functional separation of infrastructure and operation, but the operation of services remains heavily concentrated in the residual national operator, which has continued to the domestic rail market dominant share. The fact is that the market is allowed access to other operators. They are, however, compared to the residual railway monopoly in the provision of services most significantly handicapped. The dominant operator was part of the reforms the free transfer of physical and human capital necessary to operate railway services and newcomers as competitors are in a difficult situation because new equipment is expensive and the secondary market basically does not exist.
The intensity of competition in the railway sector in the European countries analyzed in the study IBM (2004), which measures the index liberalization of railways – Liberalization index (LIB), which consists of a weighted average of two indices: LEX index (30% LIB), which measures the extent to which rail reform embodied in laws and ACCESS index (70% LIB), which measures the effectiveness of the reforms in action, especially the real rate of persistent barriers to competition, such as administrative barriers, availability of transport routes or the extent of available market. Higher index values ​​indicate higher level of liberalization of the sector. The values ​​of this index are examined for the following countries: United Kingdom> 750; Sweden> 700, Germany> 700 CR> 500 France> 300 The fundamental question represents whether the higher level of competition is reflected in the improvement of performance and profit indicators of European railways.
Table: Performance indicators Railway.
Source: UIC Statistical Yearbook 2006
4th Non-European experience
01.04 Australia
chose Australia as well as EU policies vertical separation of operations and infrastructure. However, there are some differences, especially long distances and significantly less dense railway network. Unlike the EU, while Australia form a single space, on the other hand, has a lower rate of major settlements.
04.02 North America
In the USA and Canada have a different form of rail reform, because they were determined by a different starting point. In contrast to Europe and most other countries of the world, North American railroads at the beginning of the reforms are not in state-owned or not fully monopolized. The reforms therefore are more focused on the deregulation of the sector and less on opening up to competition. Rail traffic on the North American continent is characterized by low share of passenger traffic. In the U.S., the rail passenger traffic reaches a minimum share of the total passenger transport market. On the other hand, freight traffic market shares are expressed in tonne-km reaches a share of 40% of the total freight market in the USA. American railways specialize in transporting bulk materials in large volumes over long distances, which are able to achieve a favorable cost ratio than trucks. The advantage of the rail network in the U.S. are significantly lower cost of restoration and maintenance of infrastructure. Averages are given as 63,800 euros per year to track kilometer in the EU compared to € 14,600 in the USA. The reason is the high cost of securing the safety of passenger transport in Europe (DiPietrantonio-Pelkmans 2004).
04.03 Latin America
04.04 Japan

Japan is unique in that its geographical location of the island has a small share of rail transport for freight transport (high share of short sea shipping). The principal market is the personal right here. For various reasons, there has been a monopoly distribution company for several regional companies. Territories of the companies do not overlap, so there is no direct competition, but only competition in the market edges. The result of the reforms, the decline in costs, decrease in employees, an increase of passengers carried and profit. The motive of the reforms, however, was not primarily the introduction of competition, but rather a fight with the unions. The reform took place in 1987 and divided the Japanese railway on 7 regional companies that were allowed to set their own tariffs. As a result of reforms was more sensitive to customer needs and improve the quality of services provided. Between 1987 and 1991, traffic volume increased by 20% and the number of employees was reduced from 280,000 to 160,000. (Quinet-Vickerman 2004).

5th Limits of European concepts of competition on the railways
vertical separation policy seeks to introduce competition in the operation of the rail allowing entry of competing carriers in the rail network. This policy of vertical separation, however, has not been able to significantly disrupt dominant incumbents on the national rail market. Shares dominant service provider in the domestic rail market in Europe the ratio is well above 70%. Existing national dominant operators are new entrants to compete against a distinct advantage in the form of accumulated human and physical capital. In terms of introducing competition in the European rail reform was inconsistent at that point that did not divide the existing service provider to several smaller entities.
The purpose of the strategy of vertical separation in Europe was through the department achieve favorable effects of competition on the overall performance and efficiency of the sector. Although reforms to increase efficiency, thanks to the failed antitrust policy and privatization of the sector, but these plans were not followed through and the intensity of competition in the railway sector in Europe remains low. It is also possible to doubt the effectiveness of the very concept of competition between rail transport operators. Rail transport is under intense competitive pressure from other modes of transport. The question is whether it makes sense to create artificial way competition between rail transport operators, especially when road hauliers have substantially fulfills this role.
The situation of European Railways is further complicated by the high proportion of passenger services in their performances. Passenger transport is generally more expensive cost of construction and maintenance of infrastructure, because it requires a much higher safety standards. In the European context, it is usually assumed that the freight will be financially self-sufficient, while passenger traffic is loss-making and contribute to the operation of public budgets. Evropské specificity of the high share of passenger traffic and the public support in this situation is a factor which further maintains custody of the State and the railways and provide a mechanism through which the weakened market-efficient processes for the railroad. This mechanism is not present in the American model and railways are abandoned as a result of privatization and the marginal status of railway passenger transport. This is from the perspective of minimizing government subsidies highly competitive, because the interaction of the state and railways in the European conception of the state is constantly drawn into the game strong rail lobby and constantly trying to move a portion of railway costs to the state.

Application of European reform model in the real world faces a number of problems, which cause problems are primarily questions of coordination and control. The coordination problem is present in the fact that the secession of operations and infrastructure in a loss of cooperation, which should then raise the market, which is associated with additional costs. To ensure a smooth competition requires relatively rigid regulation in relation to allowing entry to the track in price regulation and supervision of the competition. Paradoxically, the highest need for effective regulation then arises in those countries that have implemented most consistently breaking, as it was in the UK.

6th Conclusion
Rail transport in developed countries is currently facing a number of economic problems. Market share of rail transport in the twentieth century fell sharply and the total profit of railway operations fell to sacrificing. Blackouts sales were replaced by state subsidies, particularly on infrastructure and operation of personal transport. This development was accompanied by a process of merger of railway companies and their transition into state ownership. These processes then mainly in Europe after World War II resulted in the appearance of railways as a monopoly, and inefficient state-owned enterprises that require high public subsidies for which they provide poor service. This unsatisfactory situation caused several reform attempts.
The variability of the railway organization and business focus of reform is high. However, there are two basic approaches to reform. The first Euro-Australian separates the infrastructure and operation of services and aims to allow free access to the rail network. The second approach, mainly the U.S. is trying to antitrust policy and privatization. Results of vertical separation on the European continent are ambiguous. On the one hand, to improve the performance and efficiency of rail operators. On the other hand, remains the intensity of competition in the rail sector is low.

The basic problem of the European reform model is the fact that only contributes little to the actual antitrust policy and privatization of the sector. The logical step after the vertical separation would be breaking a privatization of the incumbent operators, whether by regional or functional division. This, however, in Europe, with a few exceptions occurred. In other parts of the world were in relation to railways chosen alternative approaches. She was usually left to the integration of infrastructure and services, attention has focused more on privatization and antitrust policy sectors. It seems that this strategy is successful in a bid to increase the efficiency of the management of the railway companies and in an effort to reduce the amount of public subsidies accruing to the railroad. The approach will promote competition is only half-hearted, because not break a neprivatizuje dominant state operator of rail services.

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