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 Originally Posted by OngBonga
The problem I have here though is that I don't consider road and air to be "competition" to the rails. They shouldn't be competing with each other. The idea that it's cheaper to fly to Cornwall is outrageous, it's obviously more expensive to build aircarft, train pilots, and then burn kerosene to get it airbourne, than it is to build a train, train the driver, and then burn diesel or hook it up to the electrcity grid.
You are right that it isn't competition within the rail market, but it can be considered so within the transportation market. Economists tend to discuss the various things you mentioned as substitutes (trains, cars, planes, bikes, etc.).
On a big scale, it's worthwhile to think of theses in terms of competition. Here's an example for why: the less that rail can do, the more consumers move to substitutes (like cars and trucks), which lowers the price of rail and increases the price of the substitutes. Some suppliers then exit (on the margins) the rail market, and some enter the car market. This increases the supply of car goods/services, which decreases the price of car goods/services. Then consumers (on the margins again) move back to rail for some things. This raises rail demand, which increases rail price, which incentivizes entry of suppliers into rail, which increases supply, which drops rail prices and increases rail output.
The process I described is the market correcting mechanism discussed in econ 101. This mechanism has been at play in every industry one can think of, and it is essential for providing us the goods/services we have now (and the better ones we'll have in the future). It is when government intervenes with something like a price control or a subsidy that this mechanism is stymied and the markets begin to look more like monopolies instead of competitive.
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