Barriers to Entry in the Railway Industry

INTRODUCTION

The aim of this paper is to examine the degree to which the economic characteristics of the railway industry lead to barriers to entry, in the light of recent theoretical and empirical evidence and in response to policy developments in Britain. In particular, the US railroad industry was deregulated in 1980, the Canadian railroad industry was liberalised in 1987 (Grimm and Rogers, 1991), whilst there have been important organisational reforms in, amongst others, Britain, Sweden and Japan (see, for example, Nash, 1990, Truelove, 1991). In both Britain and Sweden, the intention is to allow competing operators into the market; in both Britain and Japan it is intended to privatize existing operators. Furthermore, in a policy statement issued in 1989, the EEC outlined details of a Community rail policy which includes proposals to separate infrastructure from operations and to allow access to the inhstructure by competing operators (Nash, 1991). The latter issue is now the subject of an EC Directive. Legal rights of access to railway infrastructure in EC countries have been established for:

: international groupings of railway undertakings - defined as two or more operations from different countries wishing to run international services between the Member States where the undertakings are based

: any railway undertaking wishing to run international combined transport goods services between any Member States.

The structure of this paper will be as follows. In section 2, we discuss the economic characteristics of the railway industry and examine likely barriers to entry. In section 3 we examine empirical evidence on economies of scale and the impacts of organisation on the rail industry. In section 4 we go on to examine the current proposals for organisational and regulatory reform for British Rail in the light of this evidence. This leads us, in section 5, to draw some tentative conclusions as to the best way forward for the British railway industry.