The Potential Merger Gains and Decomposition Effects of Chinese Railways

This study examines the potential merger gains and its decomposition effects of Chinese railways. A DEA approach proposed by Bogetoft and Wang (2005) is used to estimate the effects of the ex-ante mergers of 18 Regional Railway Administrations (RRAs) during the period of 2013 to 2017. We find that most of RRAs are inefficient during the sample periods, and the average efficiency in constant returns to scale (CRS) and variable returns to scale (VRS) DEA model are 0.8568 and 0.9403, separately. The results reveal that all of the virtual merged units (M1-M6) geographically consolidated have the positive gains. Furthermore, significant spatial and temporal heterogeneity exists, and the estimated average saving in CRS and non-decreasing returns to scale (NDRS) model are 19.90% and 18.82%, separately. By decomposing the potential merger gains, we found that the learning / technical efficiency effect is the main influencing factor in CRS model, while the gains mainly source from the scaling effect in NDRS model. Certainly, the harmony / scope effect also contributes to the potential gains, improving the efficiency for 2.83% and 2.36% in the above two assumptions, separately