The effect of open access rail competition on average prices. The case of Milan - Ancona

Italy, together with Austria, UK and Czech Republic, is among the few European countries where non marginal open access competition in rail market exists. The entry of the newcomer NTV during 2012, with a fleet of some 25 trains, has changed quite radically the supply and the existing market conditions in Italy, both inside rail sector and versus other modes. The effect of this competition is, however, usually measured only in terms of market shares. The aim of this paper is, instead, to shed some light on the effect of competition on the pricing policies of the incumbent. To do that, we focused on the opening of a new fast direct service by the newcomer NTV between Milano and Ancona, three times a day. Through a web crawler, we built a dataset of daily available fares, collected directly from the operators' internet web sites. The dataset includes prices on existing direct and indirect trains, between August 1st 2013 and March 2014, from 30 to 1 days of advance booking, obtaining a total of 120,000 observations. The period includes the entry of NTV on the route, before operated daily by Trenitalia, which happened on December 15th 2013 and shows both the prices' seasonal variations and the reaction of Trenitalia. Results show that the price reaction by Trenitalia after the entry of NTV is limited to the 1st class, while prices on the 2nd class remain quite unchanged. The only effect is that the weekend peaks (usually Friday and Sunday) are smoothed, i.e. after NTV cheap fares are available if booked many days in advance. NTV pricing strategy is more aggressive to gain market shares on the new service and it offers always better fares than the public operator does. Only in the very last days before departure, the higher frequency of NTV allows it to obtain higher fares.