Publicization and Competition: Government Intervention in the Market for Transportation

35 Pages Posted: 2 Aug 2021

See all articles by Naqun Huang

Naqun Huang

Institute of Urban Development, Nanjing Audit University

Jaimie W. Lien

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics

Jie Zheng

Tsinghua University - School of Economics & Management

Date Written: July 10, 2021

Abstract

How can a government regulate an existing transportation monopoly based on features of the transport market and route structures? 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 where 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 of the transportation system under these two possible regulatory strategies under a serial transport structure, and a parallel one. We show that under a serial transportation structure, the government can achieve the socially optimal traffic flow by entering the market as a competing firm and charging a negative price (ie. providing a subsidy) on its route segment. However, in a parallel transportation structure, while direct duopoly competition between the government and the private firm on each segment cannot achieve a socially optimal result, direct competition still outperforms partial publicization of the monopoly if the degree of implemented publicization is sufficiently low. Thus, the optimal regulation depends on both transport route structure and the government's degree of intervention in the firm's objective function. We also show that in a more flexible setting in which the government can partially publicize both firms in the transport market, when holding the total publicization level constant, the serial transport structure benefits most from concentrating all publicization on one firm, while the parallel transport structure benefits most from diversification of publicization across firms. Our findings contain policy consequences for governments interested in applying efficient regulatory policies under different transportation route schemes.

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

Suggested Citation

Huang, Naqun and Lien, Jaimie W. and Zheng, Jie, Publicization and Competition: Government Intervention in the Market for Transportation (July 10, 2021). 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)

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics ( email )

Shatin, N.T.
Hong Kong

Jie Zheng

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

HOME PAGE: http://jzheng.weebly.com/

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