Market Segmentation and Long-Run Competition : The Case of the Italian Rail Market

Rail liberalisation in Europe is an on-going process, with a high degree of heterogeneity across countries. Its long-run effects on the rail market however are still debated. This paper focuses on the specific case of the Italian rail market and explores the link between presence of head-on competition, price level and service frequency in the long-distance market. It first uses a cluster analysis to identify statistically two distinct market segments, which allow to analyse routes with and without competition within the appropriate context. It then exploits this segmentation in a difference in difference estimation to explore the evolution of prices and frequency over the summer periods from 2017 to 2021. Results vary considerably deepening on the segment. Among "core" routes, in fact, a decrease in early-booking fares is observed within one year of entry of the newcomer. On the other segment, instead, entry is linked to an increase in prices. Frequency, on the other hand, is affected positively until before the pandemic in the core segment, whereas no effect is visible on the other one. The paper is completed with a policy comment of the findings, providing an explanation for such different outcomes of head-on rail competition