Competition for Railway Markets: The Case of Baden-Württemberg Rafael Lalive, University of Zürich, CESifo and IZA Armin Schmutzler*,University of Zürich, CEPR and ENCORE This Version: November 23/03/06 Abstract: This paper studies the effects of introducing competition for local passenger railway markets in the German state of Baden-Württemberg. We compare the evolution of the frequency of service on lines that were exposed to competition for the market with lines procured by direct negotiations with the incumbent. Our results suggest that the competitively procured lines enjoyed a stronger growth of the frequency of service than those that were not procured competitively, even after controlling for various line characteristics that might have had an independent influence on the frequency of service. Our results further suggest that the effects of competition may depend strongly on the operator. Keywords: Competition for the market, liberalization, passenger railways, procurement auctions JEL Classification: D43,D44,R48 ––––––––––––––––––––– *Corresponding author: University of Zürich, Socioeconomic Institute, Blümlisalp- str. 10, CH-8006 Zürich; tel +41-44-634-22-71; fax +41-44-634-49-07. e-mail:
[email protected]. We are grateful to Corinne Schmutz for research assistance and to Jürgen Müller, Markus Ksoll, Etienne de Villemeur and seminar participants at the Third Conference on Railroad Industry Structure, Competition and Investment in Stockholm and the IDEI/Institut Veolia Conference on Public Services and Management in Toulouse for helpful comments, without implicating them for the contents of this paper. 1 1 Introduction As a consequence of the railway reforms in the nineteen nineties, the former state monopolies are facing increasing competition in many European countries.