To Acquire or Compete? Government Intervention in Transportation under Different Route Structures

35 Pages Posted: 2 Aug 2021 Last revised: 25 Jul 2022

See all articles by Naqun Huang

Naqun Huang

Institute of Urban Development, Nanjing Audit University

Jaimie W. Lien

Shandong University - Center for Economic Research

Jie Zheng

Shandong University - Center for Economic Research

Date Written: July 22, 2022

Abstract

What is the ideal way for a government regulate an existing transportation monopoly based on the structure of the transport market? We analyze the government's regulatory problem from the perspective of two possible strategies: partially publicizing the existing monopolist, and entering the transport market directly as a competitor. In a model in which heterogeneous consumers are uniformly distributed in their valuation of transportation services while also considering both price and travel latency in their transport choice, we fully characterize the equilibrium under each of the two regulatory strategies, under a serial or a parallel transport structure, respectively. The optimal policy depends on both the transport route structure and the government's degree of intervention. Under a serial structure, the government can achieve the socially optimal traffic flow by entering the market as a competing firm and providing a subsidy on its route segment. However, in a parallel structure, while direct duopoly competition cannot achieve a socially optimal result, direct competition can outperform partially publicizing the monopolist if the acquisition level is sufficiently low. Our findings provide policy implications for governments interested in applying efficient regulatory policies under different transportation route structures.

Keywords: Acquisition, Duopoly competition, Serial structure, Parallel structure, Mixed duopoly

Suggested Citation

Huang, Naqun and Lien, Jaimie W. and Zheng, Jie, To Acquire or Compete? Government Intervention in Transportation under Different Route Structures (July 22, 2022). Available at SSRN: https://ssrn.com/abstract=3894368 or http://dx.doi.org/10.2139/ssrn.3894368

Naqun Huang

Institute of Urban Development, Nanjing Audit University ( email )

86 Yushan W Rd
Pukou, Jiangsu 210017
China

Jaimie W. Lien (Contact Author)

Shandong University - Center for Economic Research ( email )

Jinan, Shandong 250100
China

Jie Zheng

Shandong University - Center for Economic Research ( email )

Jinan, Shandong 250100
China

HOME PAGE: http://https://meetecon.com/jie/

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