DIVERSIFICATION STRATEGY OF JAPANESE URBAN PRIVATE RAILWAYS : An Economic Analysis of Strategy and its Policy Implications

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In most industrialized countries, public ownership, subsidies, and operating deficits are generally taken as a given to the provision of urban public transportation. In Japan, however, numerous privately owned enterprises provide adequate urban transportation and operate profitably without subsidization. While factors such as a favorable urban structure (densely populated cities with concentrated urban cores) have improved the profitability of rail activities, it is and has been the innovative use of diversification and integration strategies that have played an important role in allowing the private rail firm's success.The benefits accrued to a diversification strategy include : 1) the potential to lower subsidies provided by the government ; 2) greater profit potential for operators which may increase the likelihood of private initiative in the provision of urban transportation and may lead to improved quality and quantity of service for users ; 3) enhanced the effective regional developments ; 4) the enhanced use of a mode of transport that is energy efficient, occupies limited space and causes less pollution. The main argument against the utilization of a diversification strategy is the possibility that the benefits to society accrued through diversification strategy may outweigh the costs due to restricted competition.Through this study, we could figure out several valuable insights which give use firm base for future research for market strategy of Japanese private rails and provision of urban public transportation. The study analyzes the in-house diversification strategy of the majors and their group level activity. From this study, we claims that the Japanese model exemplifies a scenario under which railway systems can be privately operated without subsidization and diversification into unregulated areas by the rail operators should be considered acceptable as a way of dealing with the urban transportation problem.