Competition in lowest-bid auctions for rail public service contracts: Evidence of non-collusive bidding from the Czech Republic

Since December 2023, EU Member States must procure most passenger rail public service obligation contracts (PSC) through auctions. This reform aims to reduce public subsidies and improve service efficiency, but its success depends on auction design. This paper offers policy-oriented guidance on how public transport authorities (PTAs) can design PSC rail auctions to promote competition, limit incumbency advantages, and reduce collusion risk. Gross PSC contracts function as private-value auctions, where competition primarily reflects cost efficiency. Net contracts include a strong common-value component tied to ticket revenues, which typically favours historical incumbents with superior information. The paper primarily addresses collusion risks in PSC auctions arising from repeated interactions among operators. We assess how alternative auction formats, reserve prices, and minimum acceptable bids can be used as policy tools to deter bid rigging. Minimum acceptable bids can both reduce collusive punishment strategies and limit low bids that later trigger contract renegotiation. Using data from PSC rail auctions in the Czech Republic, we apply collusion-screening techniques to assess bidding behaviour, and we find no evidence of collusion. The paper highlights practical design choices for PTAs. Transparent data sharing, careful contract structuring, and well-chosen auction mechanisms are essential to realising the efficiency and competition gains envisaged by EU rail market liberalisation policy.