Competition for rail transport services in duopoly market: Case study of China Railway(CR) Express in Chengdu and Chongqinq

Known as the Belt and Road Initiative, China Railway(CR) Express is driving China's efforts to boost connectivity and explore regional cooperation with Eurasian markets. In order to investigate the fierce hinterland competition between two neighbouring CR Express lines, this paper first formulates a non-cooperative game model to explore strategic decisions on pricing accounting for competition in a spatial setting, given frequency, government subsidy, local road infrastructure investment, and operation costs. We then extend the model to analyze decisions on frequency and pricing together, and the implications for social welfare, profits and market share as well. Based on a case study of CR Express lines originating from Chengdu and Chongqing to Hamburg, we verify our model and conclude some findings. The results show that government subsidy is the major factor that influences operators pricing strategy. Also, frequency and local road infrastructure investment have effects on operators' decisions. For the government, giving more freedom to operators, that is letting operators decide their frequency, is a good way to bring benefits for both social welfare and operator profits.