Using synthetic control method to evaluate the effect of a competitor's entry into high-speed rail market

Abstract

On-track competition in railway markets has emerged relatively recently as a result of European liberalization. Early-adopter countries such as Austria, Czechia, Sweden, and Italy provide instructive cases for assessing the initial impacts, which include fare reductions, service enhancements and more frequent operations, often accompanied by surging demand.

This paper investigates how on-track competition has influenced fares in a mature market such as the Italian one, by studying the entry of the newcomer on the Turin–Milan–Venice corridor. We analyse the incumbent operator's pricing strategies across multiple ticket types on each origin-destination link, using a Synthetic Control Method approach. The results suggest a price reduction effect of about 1.3–2 % for the flexible tickets, and 12–24 % for the cheapest non-flexible tickets, on most of the pairs examined. Although a straightforward before-and-after comparison does not always reveal a clear decline, the control group approach – estimating what would have happened in the absence of the new entrant – indicates a statistically significant reduction in fares.