Promoting Competition in the Transport Sector Russell Pittman Antitrust Division, U.S. Department of Justice Competition Policy and Economic Growth South-South Knowledge Exchange – GDLN May 31, 2011 The views expressed are not purported to reflect the views of the U.S. Department of Justice.

2 interesting and relevant characteristics of transport sectors Particular sectors have “natural” advantages for particular applications. – However, there are usually areas of overlapping advantage. Transport sectors often feature a high-fixed- cost network along with lower-fixed-cost operations. – There are multiple ways to create competition under these circumstances.

“Natural” advantages Example 1: Bulk freight travelling long distances goes by rail or water. High valued freight travelling short distances goes by motor carrier. Example 2: Passengers travelling long distances go by air. Passengers travelling shorter distances go by auto, train, or bus. BUT there may be large areas of overlap, especially depending on relative prices. THUS we look for, and encourage, the possibility of competition across sectors: “intermodal” competition.

Transportation Services = Network + Operations Note parallel to: – Operating systems and applications – Video game consoles and games – Durable goods and repair parts Question: Are customers best served by competition among vertically integrated networks, or competition among operators on a single, monopoly network? Answer is not always obvious. Depends on economies of scale, vertical economies, relative prices….

Example: Railways For some traffic, motor carriers offer close competition to railways. Thus railway competition not so important. For traffic “captive” to rail, different options for creating rail-to-rail competition. – Monopoly network, competition among operators – Competition between vertically integrated networks – Application: Russian railways restructuring

Example: Airports For some traffic, autos, trains, and buses offer close competition to air. Thus air competition not so important. For traffic “captive” to air, different options for creating air-to-air competition. – Monopoly airport, competition among air carriers – Competition among multiple airports, each with a dominant carrier – Application: British airports restructuring

Example: Ocean ports For some traffic, rail and motor carriers offer close competition to ocean vessels. Thus competition among ports not so important. For traffic “captive” to ocean shipping, different options for creating competition among ports – Monopoly port, multiple terminals competing for goods – Competition among ports, each with a single or dominant terminal operator – Application: Argentine vs. EU ports

Lessons Competition may appear between modes as well as within modes. Competition within modes may take place over a single “network”/bottleneck/”essential facility” OR between vertically integrated providers of both network and services Competition may take forms that surprise us! – Airlines: low cost carriers – Airlines: hub and spoke networks

A bit of recommended reading Railways: Russell Pittman, “Blame the Switchman? Russian Railways Restructuring After Ten Years,” Airports: Harry Bush, “The Development of Competition in the UK Airport Market,” h.pdf. h.pdf Ocean ports: Pittman, “Competition Issues in Restructuring Ports and Railways, Including Brief Consideration of These Sectors in India,”