When competitive tendering seems to risky. Evidence from regional railways in Poland

Abstract

This paper analyses the emergence of region-owned local operators to counteract opportunistic behaviour of the incumbent on the market of regional rail services after competitive tendering failed in Poland. Six local operators have been set up so far, their combined market share is significant (54% in passengers, 44.5% in passenger-km) and growing. The prior flawed liberalisation of regional rail market in Poland resulted in substantial barriers to entry for external competitors and strong incentives for incumbent’s opportunistic behaviour toward regional authorities. Main reasons for regional authorities to vertically integrate are lowering transaction costs of providing rail public services and eliminating incumbent’s market power.