This study was prompted by the proposal to merge a number of municipal transport undertakings into Passenger transport Authorities. The authors analyse figures showing various working expenses per bus-mile, and find no evidence of scale economies. They point out, however, that the P.T.A.s will be larger than any undertaking in their sample, and that a different conclusion might conceivably be reached if data were available on costs per passenger-mile. Extension of one-man operation appears to offer greater scope for economies than amalgamation.
Topic: 1.2 Metro bus
When UK bus services were deregulated in 1985 a system of competitive tendering was introduced for the provision of socially necessary services. Payment to the operator can be either the net difference between cost and revenue or the gross (total) cost of the service. While the former is attractive, a comparison of both methods indicates the overall cost to the contracting authority is generally lower under the gross cost method, due to the reduced risk perceived by the operator.
Consumers, influenced by their incomes, are assumed to opt for private or public transport as a long-term decision. Those who have opted for public transport then choose particular services which are least costly in terms of both price and convenience. This two-stage framework involves both vertical and horizontal product differentiation, and yields a new perspective on bus deregulation. Allocative inefficiency from deregulation can be substantial, and can amount to a third of the costs of operating the bus system.
Regimes of regulation of the bus industries of ten Western European countries are reviewed. A reluctance to accept British style open entry is observed, explained mainly in terms of the greater emphasis placed on the use of local political control as an instrument of social and economic policy.
A substantial reduction in operating cost per bus-kilometre through improved productivity is shown. However, substantial losses to users through higher fares and service instability emerge. Large increases in bus-kilometres operated did not produce any aggregate increase in ridership, but offset much of the reduction in unit cost. Overall, a small net benefit is shown in the metropolitan areas, but a net loss elsewhere. In contrast, London (subject to a competitive tendering system) shows no user or worker losses, and a substantial net benefit through higher productivity.
The aim of entry is to capture monopoly profits by displacing the incumbent or colluding. However, entrants have generally failed to do this. Incumbents have better local knowledge, and are often financially stronger. Contrary to the Government\’s expectation on deregulation, the effect of potential entrants in controlling monopoly operators is weak.
This paper attempts to explain how published cost savings have been achieved and particularly the impact of changes in wages and working practices within the context of deregulation and privatisation. Amongst metropolitan PTCs almost 19 per cent of a total unit cost reduction of 31 per cent was achieved by productivity improvements. Reductions in wages can only account for 4-8 per cent of cost savings while non-labour costs account for less than 5 per cent. The process of privatisation may be the most influential factor in reducing costs.
Analysis of predation and merger in buses performed by the Office of Fair trading and the Monopolies and Mergers Commission is assessed. Evidence linking the registration of agreements in restraint of trade with greater than average entry is presented.
Bus deregulation has so far been neither as successful as its supporters hoped nor as damaging as its critics feared. The author outlines four measures which he considers necessary.