This paper addresses two questions. First, in a one mode world (say rail or road), what is the optimal capacity choice when faced with uncertain demand, long lead times and congestion. The second question deals with two competing
modes and where only one mode has longlead times for capacity while the other has flexible capacity. This is typical for the competition between High Speed Rail and air for the medium distance trips (500 to 1000 km), or for the competition between inland
waterways and trucks for freight. We find that overinvestment is less justified because the substitute mode can more easily absorb the high demand outcomes.


This paper addresses two questions. First, in a one mode world (say rail or road), what is the optimal capacity choice when faced with uncertain demand, long lead times and congestion. The second question deals with two competing
modes and where only one mode has longlead times for capacity while the other has flexible capacity. This is typical for the competition between High Speed Rail and air for the medium distance trips (500 to 1000 km), or for the competition between inland
waterways and trucks for freight. We find that overinvestment is less justified because the substitute mode can more easily absorb the high demand outcomes.