Market Structure and Partnership Levels in Air-Rail Cooperation

In this paper, we build a theoretical model to study the underlying factors behind the various partnership levels in different cooperation schemes between airline and high-speed rail (HSR). We study two different intermodal relationships: a parallel one where the networks of the airline and the rail operator overlap partially and a vertical one where they do not overlap at all. We examine the situations when the cooperation levels are either exogenous or endogenous. For any given cooperation level, we show that the incremental profit of a vertical partnership is higher than that of a parallel partnership. However, when the two types of partnerships are both possible, the parallel partnership might be dominated by the vertical partnership only when the air-rail connecting service is sufficiently inferior to the connecting flight. The social welfare level of a parallel partnership is higher than that of a vertical partnership when the air-rail connecting service is sufficiently superior to the connecting flight. When the cooperation level is also a decision variable, a parallel partnership will have higher cooperation level than a vertical partnership when the travel time of HSR is sufficiently short compared with that of air