The complexity of market structure – prospects for on-the-track competition in Sweden 1

Abstract

During 2009, the Swedish Government is proposing to the Parliament that the last remaining monopoly of the national operator SJ – the commercial parts of rail passenger traffic – is removed in a step-wise process 2009-2010. This would introduce the possibility of on-the track competition for rail passenger services on all parts of the network. If so, it will mark the finalisation of a process that started in 1988 with the vertical separation of railway infrastructure from operations. The critical issue is how to legislate and regulate the new railway market that will emerge in 2010-2012. In this paper, we discuss the conditions for such a reform, looking at some critical issues such as the interface between subsidised (tendered) services and commercial services, the markets for rolling stock and vehicle maintenance, and the distribution of infrastructure capacity. The first aim of the paper is to recapitulate and analyze the increasing commitment to deregulation in the Swedish railway market. The second aim is to analyze the possible options that are at hand in dismantling SJ AB’s remaining monopoly rights to profitable railway lines in the inter-regional railway market and other potential sources of monopoly power. The third aim is to describe and analyze the transition from the multitude of market structures that exist today to an envisioned unified market structure after the reform. In addition, the sustainability of SJ’s financial performance in a changing market environment is reviewed, finding that the influence from general business cycles may be an important factor. The paper also includes an overview of the experience from the previous regulatory reforms and recent changes in the competitive environment and supporting industries.