In situations of competition on the railway lines, the question of what will happen to the railway system when new operators attempt to enter becomes important. There are a number of ways in which an incumbent can react to a new entrant in the market. For the rail industry the possibilities include influencing rail traffic allocation in a way that disadvantages the entrant, influencing track maintenance so that the entrant’s quality of service is decreased or simply by using predatory pricing to keep the entrant out of key markets. In practice, the possibilities for an incumbent to use its influence to disadvantage an entrant are very diverse. Examples from the vertically separated system bear this out. This area focuses on transactions that involve the rail operators. This includes operator and customers and operators and the railway administration. Operators and the physical railtrack is not important for this section. The most important transactions here may be between operators.
5.2.7.1 Vertically Integrated System
In a vertically integrated system new operators that wish to compete with incumbents would probably have to build or buy their own rail infrastructure. These
new operators would be expected to have relatively limited interaction with the
operations of the incumbent. In Canada, to enter would require a very large investment in rail infrastructure in order to effectively compete with CN or CP. A new, vertically integrated operator in Canada would therefore be unlikely.
It is possible that a railway that does not compete with the incumbent railway would be able to enter the rail industry and use the incumbent’s network. In Canada such an example is VIA Rail, a government owned passenger railway. In exchange for paying a negotiated access fee, VIA Rail operates over the networks of CN, CP and a shortline railway, OMNITrax. There is relatively little incentive for the incumbent to attempt to drive this new operator out of business since it is assumed that the access fee paid by the operator includes a contribution to the fixed cost of operating the
infrastructure. If this is the case then the incumbent is better to have the new operator on its line than not on its line.
5.2.7.2 Vertically Separated System
One facet of the Swedish system is that the state railway lost its monopoly in stages. This was motivated partly by political trepidation as to any negative
consequences that the vertical separation may have on the performance of SJ and partly by the philosophy of the government (Alexandersson and Hultén 1999). As part of the reregulation, SJ initially had control over some non-rail aspects of the infrastructure. This included control of marshalling yards and joint control over traffic planning and allocation, but more importantly over the passenger stations. SJ had a mandate from the government to use these facilities in a non-discriminatory way, but SJ did not have the incentive to do so. This was illustrated when the first new entrant began operations (Alexandersson and Hultén 1999).
The first new entrant won the tender for a regional rail service. This was the first time that SJ faced competition on home soil. SJ did not react well to the new entrant. SJ attempted to withhold rolling stock from the entrant company and when that was
resolved, used its control of the regional passenger stations to remove signs and station boarding slots. This had the effect of causing confusion at the passenger stations with the resulting disruption in service reflecting badly on the entrant.
During the next round of bargaining SJ won the regional contract back from the entrant. The entrant later took SJ to court under predatory pricing and won. SJ appealed the decision in the Swedish courts and to the Swedish government. The appeals failed and SJ was deemed liable for damages.
There is evidence that SJ has since changed its attitude when it comes to dealing with entrants. This seems to be a shift in ideas that it does not need to be the state railway anymore. By taking the approach that through operating profitable sections of line, developing cost cutting measures and attempting to create new demand it can compete in an open access environment (Alexandersson and Hultén 1999).
Further entry has come into the Swedish rail market. The main threats have come from outside companies. SJ was mandated to sell its non-rail complementary assets. An important sale was the sale of SJ bus operations to the UK rail/bus firm Stagecoach. On the rail front SJ lost the lucrative Stockholm local transport franchise to a consortium of UK, Swedish and French companies. SJ also lost the franchise of another passenger service connecting Malmö and Gothenburg, the second and third largest cities in Sweden. This action signals an increase in government willingness to remove SJ’s special powers. SJ was losing money on this route but did not want it to go to tender since they were continually improving their financial result. The government forced this to go to tender and it was won by another firm. The government decision to force a route that was not officially abandoned by SJ has raised the possibility of altering the limits of the tendering process. If the government is going to take the action of forcing a line to go to tender then why not just leave all passenger traffic to be tendered?
If the learning curve effects are significant and if non-existent markets for leasing rolling stock necessitate entrants to acquire sunk assets to expand, then the Swedish market will continue to be dominated by SJ. The best lesson to be learned and perhaps the best opportunity for effective competition in the rail transport sector may be established companies from the rest of Europe. With many large, experienced operators already established it could be a shorter step than in other jurisdictions to having
effective competition. Entry by firms outside of Sweden has started to be realised with French and British companies beginning operations.
SJ's opinion about new entrants is also said to have changed. When the BK Tåg began operations on a regional line, SJ reacted in a hostile manner. More recently though, the two companies have not been as hostile and even have agreed on sharing the use of some rolling stock. Another entrant has a subcontracting agreement with SJ on a route. However, Farrel's description of the Arlanda link project and recent events (Hultén) shows that SJ will not always be considerate to its competitors.
It is important to note that the winning of a franchise for regional transportation is not a true test of open access on a rail network. The regional system is horizontally separated from the rest of the network and in some ways can be thought of as a regional monopoly. The entrant did not have to fully deal with problems of competitive
timetabling against another rail carrier. The regional networks are characterised as small and relatively simple. This leaves the question open as to how the entry would work in a full network.
CHAPTER 6 Conclusions