Market Size and Vertical Structure in the Railway Industry
Osaka University - Institute of Social and Economic Research
Kobe University - Graduate School of Business Administration
October 7, 2011
The Institute of Social Economic Research Discussion Paper No. 820
We provide a theoretical framework to discuss the relation between market size and vertical structure in the railway industry. The framework is based on a simple downstream monopoly model with two input suppliers, labor forces and the rail infrastructure firm. The operation of the downstream firm (i.e., the train operating firm) generates costs on the rail infrastructure firm. We show that the downstream firm with a larger market size is more likely to integrate with the rail infrastructure firm. This is consistent with the phenomenon in the railway industry.
Number of Pages in PDF File: 24
Keywords: vertical integration, railway industry, market size, vertical coordination
JEL Classification: L22, L13, R32working papers series
Date posted: October 14, 2011
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