Comparing the costs of vertical separation, integration, and intermediate organisational structures in European and East Asian railways

There is a major policy debate within Europe and more widely on how to structure railway systems to enhance competition, whilst minimising costs. This is the first study in the academic literature to examine, using econometric methods, the cost impacts of three different approaches to structuring railway systems: vertical separation, vertical integration and the intermediate holding company model. Our analysis is based on a panel of European and East Asian railways (1994-2010). We find that the optimal railway structure depends on the intensity and type of traffic running on the network. Our research suggests that, at least on cost grounds, countries should be free to choose between vertical integration, the holding company model or vertical separation.