The impact of competition on productive efficiency in European railways

This paper empirically explores the relationship between competition design and productive efficiency in the railway industry. We use Data Envelopment Analysis (DEA) to construct efficiency scores, and explain these scores, using variables reflecting institutional factors and competition design. Our results suggest that competitive tendering improves productive efficiency, which is in line with economic intuition as well as with expectations on the design of competition. We also find that free entry lowers productive efficiency. A possible explanation for this result is that free entry may disable railway operators to reap economies of density. Our final result is that more autonomy of management lowers productive efficiency. Most of the incumbent railway companies are state owned and do not face any competitive pressure. As a consequence, increased independence without sufficient competition and adequate regulation may deteriorate incentives for productive efficiency.