Competition between high-speed and conventional rail systems: A game theoretical approach

Coexistence of a high-speed railroad and a conventional railroad in a common transportation corridor creates competition and cooperation between the two systems. By studying the case in Taiwan, we develop a game theoretical model to describe the rail systems' pricing strategy under a two-part tariff pricing structure. With the proposed heuristic, the model solves for the ticket prices under the Nash equilibrium. We use the widely-employed "linear city" concept to model the passengers' locations and combine the passengers' origin and destination regions into a two-dimensional O-D rectangle. The model yields reasonable results when tested with parameters derived from real data. Further comparative static analysis demonstrates the ability of the model to predict the two rail system's response to various scenarios, including changes in operation efficiency, passengers' costs and time value, competition intensity, and service level. Test results are close to expectation.