Bidding for tendered bus routes in London

Abstract

Individual bids made for cost contracts in London Regional Transport bus routes between 1985 and 1988 are analysed, for three purposes: to test hypotheses about bidding under competition; to examine bid tactics when a dominant incumbent, London Buses Ltd., was exposed to private bids; and to devise cost estimates for different types of bus operations. With individual route bids, while some expected features of bidding in competitive equilibrium are found, the bids more plausibly reflect the differential rents to factor supplies in disequilibrium. London Buses Ltd successfully deployed superior ability to combine bids for groups of routes when tendered together, discouraging the tenderer from pursuing this tactic. Costs for different types of operation, derived from the statistical analysis of individual routes, are confirmed by inferences from grouped bids.

We are grateful for the assistance and advice provided by several officers of London Regional Transport, particularly Mr. Nick Newton. We have benefited from comments by two referees.

Key words:

• Bidding
• competition
• buses
• models
• cost saving

Notes

We are grateful for the assistance and advice provided by several officers of London Regional Transport, particularly Mr. Nick Newton. We have benefited from comments by two referees.