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Vertical separation, disputes resolution and competition in railway industry

Thredbo 9, WS E, 7 th sep 2005. Vertical separation, disputes resolution and competition in railway industry. D. Bouf, Y. Crozet & J. Lévêque Transportation Economics Laboratory (LET) CNRS & University Lyon 2 Lyon, France. Introduction. Structure of the presentation.

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Vertical separation, disputes resolution and competition in railway industry

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  1. Thredbo 9, WS E, 7th sep 2005 Vertical separation, disputes resolution and competition in railway industry D. Bouf, Y. Crozet & J. Lévêque Transportation Economics Laboratory (LET) CNRS & University Lyon 2 Lyon, France

  2. Introduction Structure of the presentation • Introduction: vertical separation and regulation in GB and France • Conflict sources: monopoly of the IM and externalities • Dispute prevention (rules, principles); dispute resolution systems • Conclusion: consequences for competition Thredbo 9: Vertical separation, disputes resolution and competition in railway industry

  3. Introduction Vertical separation and regulation in Great Britain Department for Transport (SRA) Franchise contracts arrangement Regulator ORR Thredbo 9: Vertical separation, disputes resolution and competition in railway industry Infrastructure Manager Network Rail Track access Railway Undertakings agreements

  4. Introduction Vertical separation and regulation in France Regions, Government law contracts law Thredbo 9: Vertical separation, disputes resolution and competition in railway industry Contracts Infrastructure Manager RFF SNCF (main RU) for use contract other RUs Delegated IM SNCF

  5. IM’s supposedly preferred slots allocation RU’s supposedly preferred slots allocation Conflict sources The monopoly of the Infrastructure Manager • Access & pricing: market power  high prices • “quiet life”  no guarantee of slot quality/quantity • Slots allocation: • Congestion: a lack of investment incentives (prejudicial to the RUs) Thredbo 9: Vertical separation, disputes resolution and competition in railway industry

  6. Conflict sources Externalities affecting another party • Maintenance works: IM’s maintenance costs minimization •  long interruption of train services (prejudicial to the RUs) • Delays: IM’s or an RU’s carelessness •  delay spread to other trains (prejudicial to the RUs) • Disruptions: accidents or blackout •  deleted trains (prejudicial to the RUs) •  infrastructure damages (prejudicial to the IM) • Network changes: some changes may increase operating costs Thredbo 9: Vertical separation, disputes resolution and competition in railway industry

  7. Dispute prevention & resolution systems Dispute prevention rules • GB: industrial rules & contracts • the IM, RUs and regulator agree on • - the Network Code (237 p.) • - the Rules of the plan • - the Rules of the route • the IM and each RU sign • a Track Access Agreement (approved by the ORR) • F: law & hierarchical system • the IM defines • the Network Statement • (submitted to the RUs and approved by the Government) • the IM and each RU sign • a Contract for Use Thredbo 9: Vertical separation, disputes resolution and competition in railway industry

  8. Dispute prevention & resolution systems Dispute prevention principles • GB: the compensation principle • each externality is compensated (a complex mechanism) • social welfare  ; risk  • high transactional costs • F: a lack of incentives • no compensation • (except in some cases of disruption) • a lack of financial incentives • SNCF (delegated IM) has natural incentives (as main RU) to maintain the network Thredbo 9: Vertical separation, disputes resolution and competition in railway industry

  9. Dispute prevention & resolution systems Dispute resolution systems • GB: inside the industry • industry mediation service • (common practice) • specific court • (less common) • appeal to the ORR • (exceptional) • F: outside the industry • external mediation committee • usual court • usual procedure of appeal Thredbo 9: Vertical separation, disputes resolution and competition in railway industry

  10. Conclusion Consequences for competition in Great Britain • long term relationship between the IM and the RUs • Network Rail (IM) = hybrid form • RUs’ investments transfer • bigger role of the Government Thredbo 9: Vertical separation, disputes resolution and competition in railway industry vertical re-integration barriers to entry less competition

  11. Conclusion Consequences for competition in France • strong antagonism IM / SNCF (main RU) •  no vertical re-integration • SNCF’s lobbying to assert its rights, as an operator •  benefit to the other RUs • no industry mediation •  no collusion between the RUs •  no vertical re-integration Thredbo 9: Vertical separation, disputes resolution and competition in railway industry prepares the progressive introduction of competition

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