Entry in high-speed rail markets: Does multiproduction make a difference?

We propose an ex ante evaluation of the effects of a structural change in the rail industry in the presence of vertically differentiated services by considering a multiproduct rail operator. Firstly, rail operators set frequencies and then prices are chosen. Frequencies are viewed by passengers as a quality feature. A flexible cost function accounting for (dis)economies of scope in the supply of high and low quality services for a multi-service operator is assumed. It is shown that the multi-service operator provides more total frequencies than the single-product duopoly when economies of scope are sufficiently important. Also, equilibrium high quality frequency under multi-service monopoly exceeds that under duopoly when the high quality service is relatively more valued than the low quality service. Simulation results for Madrid–Barcelona and Madrid–Valencia line scenarios with a multi-product operator perform better than scenarios with single-product operators; total frequency, consumer surplus and welfare are higher when the relative size of scope economies is sufficiently large.