Sequential entry in Spanish HSR markets and its effect on prices

This paper evaluates the price effects of open access competition in two of the most important High-Speed-Rail routes in Spain, Madrid-Barcelona and Madrid-Valencia. The distinctive elements of the Spanish experience are that: (i) there are four brands offered by three operators that appear differentiated in the eyes of passengers, (ii) the incumbent Renfe is a multi-brand company in competition with two single-brand operators, and iii) entry has happened in sequence. Employing data on ticket prices between November 2020 and April 2024, we find that entry has produced industry price reductions by 18.6% in Madrid-Barcelona and by 21.5% in Madrid-Valencia. Our analysis unveils part of operators’ business practices before the increase in competition. Entry of Renfe’s low-cost brand Avlo increases Ave prices, whereas Ouigo and Iryo’s entry decrease them. Lower quality services of Avlo and Ouigo are priced below those of Ave and Iryo, which offer more train services and on-board facilities. • We evaluate the price effects of sequential entry in Spanish High-Speed-Rail markets. • The incumbent offers both high and quality services. • Entry produced industry price reductions by 18.6% in Madrid-Barcelona and by 21.5% in Madrid-Valencia. • Renfe’s low-cost brand Avlo increases Ave prices, whereas Ouigo and Iryo’s entry decrease them.