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Abstract
This paper investigates the effectiveness of liberalization policy on the intercity coach market in England and Wales and evaluates its impact in promoting competition and enhancing welfare. The paper adds to the current literature by assessing this policy focusing on natural monopolies, deriving a structural model of the industry and using web-scraped key market-level data in the study. Regression analysis and descriptive statistics suggest peripheral routes with a small market size are natural monopolies, where passengers pay higher prices. We estimate a structural model, currently absent from the literature, which shows that these routes are characterized by lower welfare levels. The model allows us to simulate a policy promoting competition on such routes showing that a regulator could generate net welfare gains by implementing a more competitive equilibrium on these routes. This paper confirms the dominant conclusion that unregulated coach industries detrimentally consolidate, as demonstrated in other European markets.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 I would like to thank Howard Smith, an outstanding supervisor throughout the writing of this paper. I would also like to thank John Griffiths for his continuous help since my arrival in the UK.
2 Some papers include carpooling services (Beria and Bertolin Citation2019; Beria, Nistri, and Laurino Citation2018; Blayac and Bougette Citation2017), as a relevant competitor of coach services in the Italian and French market. Nonetheless, the 2016 National Travel Survey (Department For Transport Citation2019) does not mention carpooling in the five most used modes of transportation in the UK. This suggests competition with coach services is relatively limited on the routes of our sample.
3 Available at: https://www.comparabus.com/en/. Last accessed the 22th June 2020.
4 Available at: https://www.omio.co.uk/. Last accessed the 22th June 2020.
5 Available at: https://uk.megabus.com/. Last accessed the 22th June 2020.
6 Available at: https://www.checkmybus.co.uk/. Last accessed the 22th June 2020.
7 See appendix.
8 See appendix.
9 ’Data Tool’, available at: https://www.centreforcities.org/data/. Last accessed the 22th June 2020.
10 I calculated the geometric average between the cities of departure and arrival to capture the synergy of having two large cities. Such an average predicts that a route between a small city, in terms of population or income, and a large one is more likely to generate small passenger volumes. Nonetheless, this is less extreme than taking the minimum value between the two cities.
11 Cheap bus and coach tickets megabus UK’, Comparabus, available at: https://www.comparabus.com/en-gb/bus-companies/megabus. Last accessed the 22th June 2020.
12 See formula in the appendix.
13 The formulae used to calculate the elasticities are set out in the appendix.
14 The new equilibrium was sensitive to our initial assumption for the within group market shares. We have assumed symmetry between firms so far, e.g. identical costs and demand functions. Therefore, we assume that initial within group market shares are 50:50 and thus predict a symmetric equilibrium.