Privatization of transit and roads is gaining increasing interest. This paper develops a model in which infrastructure pricing and optimal capacity are analyzed under both public and private regimes. It compares optimal outputs (number of passengers) and capacities of public and private operators of rail transport. A crucial aspect of the paper is competition between modes: for instance, how are optimal outputs and capacities of the private railway operator influenced by the strategic decisions on the road capacity and tolls for the private (car) alternative?
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