Competing Transport Networks

In a circular city model, I consider network design and pricing decisions for a single fast transport connection that faces competition from a slower but better accessible transport mode. To access the fast transport network individuals have to make complementary trips by slow mode. This fact has interesting implications on the location decisions. I show that in the presence of competition the profitmaximizing and socially optimal decision would be to cluster the two stations. By contrast, in the absence of competition both a profit-maximizing firm and a social planner would locate the two stations on opposite sides of the circle.