Comparing Competition and Regulated Monopoly in a RailwayMarket: An Agent-Based Modeling Approach

This paper introduces an agent-based model of a passenger railway line. The model is used for comparing the welfare of the railway market under unregulated duopoly and monopoly with maximum-price regulation. In the model, the railway operators gradually adjust passenger fares and eliminate train departures until the market reaches steady state. The paper analyses the steady-state data generated using two sets of parameter values. It finds that for most maximum-price levels, including the price that would be chosen by an unregulated monopoly, the total welfare in the monopolistic market is significantly lower compared to the duopoly market. However, there are some levels of maximum price which produce similar or even higher welfare than the duopoly market. The paper suggests that if correctly implemented, a simple maximum-price regulation may generate welfare outcomes comparable to competition.