A multi-operator differentiated transport network model

We develop a network model of differentiated transport services explicitly incorporating interchangeable and rival aspects, characteristic of many transport systems, allowing exploration of the implications of strategic interaction on pricing amongst multiple rival operators within and across modes. The model offers a framework for studying the impacts of alternative policy scenarios with a wide variety of applications across the transport sector in a way that is tractable and allows meaningful analysis. We illustrate some of the uses of the framework through a series of applications which demonstrate the importance of explicitly recognising the dual rival and interchangeable aspects across multiple operators. Amongst other things, we show that the base model, which we characterise as n = 2, and which has been widely employed in the transport literature, in some respects represents a special case and that the relative size of equilibrium profit, consumer surplus and welfare across regimes as well as the rankings of different regimes across these performance indicators are non-monotonic in n, hence justifying a framework which explicitly allows n to vary. One application examines the performance of the multi-operator ticketing card scheme under guidelines operating in the UK local bus sector. This features as a key part in the UK government’s local bus transport strategy but is also currently under statutory review. A calibration exercise shows this regime may offer higher profit, consumer surplus and welfare as well as a more extensive service provision than the ‘free-market’ case.