PowerPoint-Pr

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What can regulatory economics learn from
franchise systems? - Some additional arguments
for vertical integration of railway companies
Thomas Ehrmann ehrmann_at_ug.uni-muenster.de Westfäli
sche Wilhelms-Universität Münster
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Table of contents
Vertical (dis-)integration in the railway
industry?

1. Regulatory economics railways
2. Mc Donalds regulatory economics
3. Mc Donalds railways
4. Conclusions

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Argumentation, regulatory economics Mc Donalds
I. Regulatory economics and
railways TAC cost minimizing VI market
constellation VI no TAC new
artificial institution
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II. Mc Donalds and regulatory economics
VI no TAC vertical (plural
form) disintegration VI no TAC/ VI
why? (plural form) cost minimizing
market constellation
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I. Regulatory economics and railways
TAC cost minimizing VI market constellation
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• Irrelevance of cost advantages in production
  because of
• contractual solutions
• Coordination problems (dis-)investment plans,
  allocation of routes, route parameters (one vs.
  two ways, curve radius, extent of inclination)

VI can be rationalized with coordination
problems market access regulation (access prices
etc.)
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I. Regulatory economics and railways
VI no TAC new artificial institution
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The continuous control and coordination of the
traffic flow is also necessary (as it is for
airlines, d. A.) for railroads () Regarding the
extent of necessary coordination activities it is
not relevant whether train control, network, and
transportation is managed by one company or
independently () If a firm is not only owner of
the infrastructure and train control but also
provider of transportation services competitive
distortion may the consequence () One
possibility to guarantee an equal treatment of
all transportation companies is given by an
independent train control in analogy to air
control (a.a.O., p. 285). Artificial
institution to avoid/solve problems of
competitive discrimination (? Mc Donalds)
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II. Mc Donalds regulatory economics
VI no TAC vertical disintegration (plural
form)
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• Brand, services
• Contractual provisions for all relevant business
  problems with
• franchisees
• Regulatory economics assumption of
  discrimination against
• franchisees (pro company owned outlets)
• solution of regulatory economics vertical
  disintegration,
• access regime, quality regulation of services

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II. Mc Donalds Regulatory economics
VI no TAC/ VI why? (plural cost minimizing
form) market constellation
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• no TAC plus franchises (i.e. contracts) why
  company owned
• outlets (i.e. VI)?
• problems of codification of interfaces
• problems of internalizing investments innovation

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II. Mc Donalds Regulatory economics
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Challenges to Mc Donalds
solution

• innovation
• standardized, system wide
• implementation

• Exploration franchisees
• exchange
• Exploitation company owned outlets

• reasons for VI
• maintenance of innovation capabilities
• reputation Headquarters

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III. Mc Donalds railways

• Mc Donalds VI as a solution to underinvestment
  problems
• in innovation
• railroad specific interface issue
• adaptation of locomotives to routes (ÖBB, SBB
  Gotthard)
• security techniques (Post-ETCS) leading trains
  through the central automatic control system
• Lord-Cullen-report
• Missing technical monitoring competency on behalf
  of the regulatory body
• Missing system-wide management perspective
  (quality,
• security)
• problems of liability

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IV. Conclusion

• (partial) VI as a solution
• Reintegration as a market-based solution
  Westcoast-Mainline
• Profit-Sharing-Agreement with Virgin ?
  exploration/exploitation
• VI as a starting point plus solution of
  competition issues by
• access pricing etc. ? economic rents of
  franchisees