Competition Between High-Speed Rail and Air Transport

In this paper we analyze the competition in prices between a single high-speed rail operator and a single air company, assuming that the rail company is under control of the government, while the airline is a privately-owned company. While most papers regarding this topic focus on the usual marginal costing method, our paper focusses on the average cost pricing method in order to include the fixed costs into the decision-making process. Contrary to the existing literature, we impose an additional constraint of zero-profit condition for the rail operator and show that the effect of rail carrier’s frequencies and fixed costs on prices and quantities is not changed. Later we implement our analysis for the special case of the projected Moscow – Kazan high-speed rail and show that this high-speed rail is not economically efficient in the short run.