Bus competition: economic theories and empirical evidence

Abstract

This paper presents empirical results from five case‐studies of “on the road” commercial bus competition in Britain, and uses these results to test some economic theories relating to bus competition. There are no instances in the case‐studies of competition between different qualities of bus service, but there has been intense competition between buses offering similar qualities of service. The economic models of horizontal bus competition seem broadly consistent with the empirical results. However, the predictions of the models that competing buses will run at equal headways, and that fares will be lower on high‐demand routes than on low‐demand routes, are not borne out by the evidence; the reasons for this are discussed. The paper considers evidence that the bus market is contestable. The results are inconclusive, but the most telling single point is in favour of the theory that the market is contestable.

Key words:

• Bus competition
• spatial competition models
• product differentiation
• minibuses
• tacit collusion
• contestable markets