European Union (EU) leaders have endorsed the objective of developing a EU-wide multimodal TEN-T (Trans European Network-Transport) by 2030, which will connect major airport hubs to the high-speed rail (HSR) network by 2050. Indeed, air transport and HSR are not simple competitors, but become complements on long-haul routes: if HSR is an effective substitute for flights, then connecting passengers might be offered a combined transportation service, which bundles domestic HSR and international air services through a multimodal hub.
In this context, we study the strategic formation of airline-HSR partnerships, depending on the sunk costs necessary to make cooperation effective and on transport operators bargaining power in negotiating agreements. We analyze the conditions under which a given type of intermodal agreement improves consumer surplus and social welfare, depending on the level of congestion at hub airports and on mode substitution between air and HSR services. We fill two important gaps in the academic literature. First, the literature finds that the welfare gains from an airline-HSR merger are driven by firms' profits rather than consumer surplus. Hence, antitrust authorities would hardly approve the merger. Second, the literature considers a scenario of full-scale cooperation in the whole transportation network that resembles an airline-HSR merger, and ignores transport operators' incentives to join the alliance.
Main outcomes are:
* Measurement of the potential gains and losses of the transport operators engaged in the different forms of cooperation;
* Assessment of the effects on consumers' surplus across the different forms of integration reported;
* Determination of the possible participation of regulators to avoid anti-competitive arrangements among operators and market foreclosure and identification of tests that provide a sufficient condition for consumer surplus to be higher under the agreement.
EXPECTED OUTCOMES, POSSIBLE APPLICATION POTENTIALITIES AND SCIENTIFIC IMPACT OF THE PROJECT
Expected outcomes are intended to both map the welfare effects of air-rail cooperation as well to explore the policy implications. There are two main outcomes which are scheduled as follows:
Outcome 1: Impact on consumers and welfare effects
* Measurement of the potential gains and losses of the transport operators engaged in the different forms of cooperation (either vertical or horizontal agreement);
* Assessment of the effects on consumers' surplus across the different forms of integration reported;
Outcome 2: Impact on regulation and antitrust policies
* Determination of the possible participation of regulators to avoid anti-competitive arrangements among operators and market foreclosure;
* Assessment of how policy makers could intervene to regulate the market, in light of the pricing strategies adopted and identification of tests that provide a sufficient condition for consumer surplus to be higher under the agreement.
This study has two main applications:
* First, we provide policy makers with a practical tool for assessing systematically the multifaceted impact of any intermodal agreement involving high speed rail and air transport. Based on current competition at both air- and rail- side, along with the availability of infrastructures, the framework proposed allows to clarify each player's incentives and barriers to join the agreement and how this affects social welfare. Taking a welfare perspective, we expect to outline scenarios in which cooperation is a social desirable market outcome of air-rail interaction, benefiting both transport operators and passengers with no need for regulation. On the contrary, cooperation as resulting from collusion practices may be incentive compatible for providers, while harming consumers. In such a case, regulation policies are needed to fully exploit the advantages of intermodality, most of which are related to non-monetary externalities.
* Second, relying on previous analyses, our study offers insights to prioritize public funding in air-rail infrastructures. In some cases, firms should be encouraged to cooperate at all. This occurs if an agreement of either type is not incentive-compatible for firms when it improves consumer surplus. Thus, a publicly owned airport might incur part of the sunk costs needed to deploy the intermodal infrastructure, especially if firms have different market power.