Pricing and infrastructure fees in shaping cooperation in a model of high-speed rail and airline competition

Abstract

This paper studies the effects of cooperation in a hub-and-spoke network with high-speed rail and airline competition. The distinctive elements of our analysis are the consideration of: (i) per-passenger airport and rail infrastructure fees; (ii) mixed bundling pricing by partners, and (iii) an airline duopoly in the international market. We show that partners fix the cheapest bundle price of the combined trip, that non-allied operators respond by decreasing the prices per link, and that connecting traffic increases. Per-passenger fees sig- nificantly affect the price differences following cooperation. An empirical application con- firms that it is privately profitable and that welfare gains are in the range of 0.8-2.2%; these can be higher for lower fees or lower cross-price elasticity between modes