An analysis for privatization process of tram and bus lines as a leader-follower game in product differentiation

Many municipalities deregulate and privatize in public transportation services. Public transportation agency confronts with alternative enterprises but it might be an uneven competition. The agency has initially set about the lines so as to improve the social welfare of the municipality, while private enterprises are not obliged to assure the welfare and are free of entry time, with little investment. Citizens should choose whether they trust that tax payment may increase the welfare as a whole in the municipality or they expect the efficiency of profit-maximizing company sharing a part of lines. If it is assumed that the average expenditure of citizens equals no matter how they pay tax or fare in transportation, a leader-follower game in a differentiated product market is found, in which a private enterprise newly enters the territorial network of the public dominant. This paper firstly formulates the leader-follower game model, and then considers scopes of strategies, differentiation in transportation network complexity, and so forth.