This presentation by Professor Marco PONTI, Professor of Applied Economics at the Polytechnic University of Milan was made during the roundtable discussion on competition and innovation in land transport held during the 62nd meeting of the OECD Working Party No. 2 on Competition and Regulation on 28 November 2016. More papers and presentations on the topic can be found out at www.oecd.org/daf/competition/competition-and-innovation-in-land-transport.htm

1. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
1. Main past impacts of transport
regulation (1)
1.1 Foreword:
Two types of innovation: operations and technologies.
In general competition stimulates innovation.
1.2 Historical role of transport liberalization: trucks
against trains after the Sherman Act of 1890. Trains in UK
and US: successful but controversial. Here a mention of air
services is needed (USA and low-cost), like buses now in
Europe. Competition in HST in Italy, UBER still struggling.
Containers: apparently market-driven only, but a case of a
positive QWERTY (good state-business collaboration).
1.3 Innovation in transport also military driven (trucks,
jets, ITS).

2. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
1. Main past impacts of transport
regulation (2)
1.4. Infrastructure cannot be liberalized (“natural
monopolies”), only well regulated, when not-for-free. Only
some innovation here.
1.5 HST seems an exception for the role of competition: a
product of the state only. True, but in general with high
public costs: see Italy, Spain, USA, the same France now.
A technology not demand-driven, like jets or cars.
Only in China and Japan, for super-dense corridors, the
burden for the state can be limited.

3. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
2. The fight against transport liberalization (1)
2.1 The arguments in favour of monopolistic public
transport (local and railways):
a) Income distribution: untrue for several reasons
(alternatives: competition “for the market” a.k.a.
“Demsetz competition”, means-tested subsidies).
b) The environment: partly correct, but taxes on fuels etc.
(“Pigouvian taxes”) are far more effective than modal split
goals. Emission standards: a reasonable compromise.
c) Road congestion: better dealt with via “road pricing”

4. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
2. The fight against transport liberalization (2)
2.2 Safety standards for transport are still needed:
asymmetry of information for vehicles, and some external
component for accidents.
2.3 The real mechanism that makes difficult public
transport liberalization: “capture”.
Railways and local transport are often public-owned: an
important role of “votes of exchange”, and the protection
of national industries (“pork-barrel policy”), when not
“modern corruption”.
The European case: 30 years? More?

5. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
4. Perspectives (1)
4.1 For railways:
since innovation (HST) has been mainly driven by public
money, not much in sight (ITS-controlled maintenance).
This also for technical reasons: difficult to separate
infrastructure (a natural monopoly) from services, where
competition is possible (see the Maglev case).
In Europe, negative tendencies of the demand for freight,
not so negative for passengers but only via large
subsidies. In the USA, with limited subsidies, rail
passenger transport almost disappeared.
But you never know…liberalization may well bring
surprises, like in the air sector (a rail-based RyanAir?)

6. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
4. Perspectives (2)
4.2 For road transport:
rapid innovation, already well under way (UBER-type and
other ITS-driven services, buses for low-income groups).
For cars and trucks, non-polluting motors, due to taxation
and emission standards, and tomorrow fully automatic
driving, if combined, will mean a sharp reduction of social
and private costs, and of the role of public services with it.
Here large QWERTY issues emerge. “Intelligent roads”
need planning, but also energy supply standards and
networks.

7. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
5. Tentative recommendations (1)
5.1 Regulation is supposed to follow and promote a
complex picture of transport innovation: a pro-market
attitude will help the on-going change.
5.2 In order to accelerate liberalization:
no more subsidies or monopoly rights for suppliers (see
large “capture” mechanisms in place).
Every market failure addressed directly: the “polluters
pay” principle for the environment, subsidies aimed only
to low-income groups for public transport, direct charges
for congestion.

8. T R A S P O L
RESEARCH CENTER ON TRANSPORT POLICY
LABORATORIO DI POLITICA DEI TRASPORTI
Regulation and innovation in land transport
Marco Ponti OECD, November 29, 2016
5. Tentative recommendations (2)
5.2 For infrastructure: strong regulation in defence of new
entrants in the railway sector, up to “tilting the table” in
their favour (“asymmetric regulation”). The incumbents
have very large advantages (information, economy of
scale, public ownership). For toll highways, do not follow
the Italian case (very high private rents).
5.3 Special regulatory efforts are needed in order to set
pro-market common standards (the “QWERTY” issue), for
new forms of energy and ITS supply, for “intelligent
roads”, and for some protection of labour in Uber-type
services, both in order to accelerate the process, and
when labour is really subordinate.