Volume 20 Issue 9 - December 9, 2011 PDF
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INTERMODAL COMPETITION WITH HIGH SPEED RAIL- A GAME THEORY APPROACH
Oliver Feng-Yeu Shyr* and Meng-Fu Hung
Department of Urban Planning, National Cheng Kung University, Tainan 701, Taiwan
 
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Before the inauguration of Taiwan High Speed Rail (THSR) in January of 2007, it was estimated that approximately 50% of the air trips, 20% of rail trips, and 15% of freeway bus trips in Taiwan’s western corridor would be replaced by the new competitor. With relatively remote locations of its stations, poorer service quality, and more expensive fares, THSR did not attract most of the passengers from the air travel market in the first quarter of 2007. On the other hand, as the major competitor of THSR, domestic airlines had formed alliance to enhance their competitiveness. But soon the good fortunes for the airlines had gone away as THSR began its promotion campaign by offering discounted fares and increasing train frequency. By the mid 2008, over 90% of the domestic flights between cities in Taiwan’s western corridors had been cancelled and one of the domestic airlines went bankruptcy. The objective of our study is to predict the new market equilibrium as well as to provide guidance of competition strategies for all the competitors in the industry. We began our analysis by the calibration of the payoff functions of various modes with stated preference (SP) and revealed preference (RP) data in order to solve the new Nash Equilibrium by maximizing payoff functions with respect to fare rates and flight frequency. We suggested that reducing flight frequency and forming alliance might be the most effective approach or the only option for airlines after the operation of THSR. Moreover, we predict that allied airlines flying between Taipei and Kaohsiung would be difficult to maintain profitability after the first quarter of 2007. And their market share and the daily flight frequency will be reduced by more than 50% even if THSR did not now lower its fare and improve its service quality. At the end of this paper, we presented the comparison of social welfare before and after the opening of THSR and concluded that for the airlines the introduction of THSR might be a nightmare, but for the consumers as a whole, the opening of THSR could significantly enhance the mobility of interregional travel among the metropolitan areas in Taiwan’s western corridor.

Table 1: Modal comparison of frequency, fare rates, market shares, and social welfares before and after THSR’s operations
Modes / Year
Market Shares
Frequency
Fares (NTD)
Payoffs
Consumer Surplus
Social Welfares
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
Air
37.1%
18.4%
53
27
2110
2250
51
338
17597
8827
17649
9165
THSR
NA
30.3%
NA
23
NA
1490
NA
6593
NA
13965
NA
20558
TR
14.9%
13.8%
16
16
850
850
1831
1686
2003
1859
3834
3545
Bus
28.1%
29.1%
216
216
575
610
308
462
4038
4090
4347
4552
Auto
19.9%
8.4%
NA
NA
910
910
NA
NA
NA
NA
NA
NA
Total
100%
100%
NA
NA
NA
NA
2191
9079
23639
28741
25830
37820
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