Transgression to Loop Spaces and its Inverse, II: Gerbes and Fusion Bundles with Connection

We prove that the category of abelian gerbes with connection over a smooth manifold is equivalent to a certain category of principal bundles over the free loop space. These bundles are equipped with a connection and with a "fusion" product with respect to triples of paths. The equivalence is established by explicit functors in both directions: transgression and regression. We describe applications to geometric lifting problems and loop group extensions.