Bus companies - creating too much competition?

Citation

Kirkbride, J. (2010), "Bus companies - creating too much competition?", International Journal of Law and Management, Vol. 52 No. 2. https://doi.org/10.1108/ijlma.2010.01052baa.001

Bus companies - creating too much competition?

Article Type: Editorial From: International Journal of Law and Management, Volume 52, Issue 2.

In the UK, the Transport Act 1985 introduced the deregulation of the local bus markets outside of London. Essentially the Transport Act deregulated and sought to create competitive markets by removing constraints on fares and removing quantitive restrictions on the supply of bus services. It did, however, create a highly fragmented industry. Has deregulation worked? A question that is difficult to answer, but the signs are not promising. Arguably, the question has become even more important today with the focus on energy conservation, effective public transport services, and value for taxpayers. What are the poor signs? In the early days of the Competition Act, much of its time was spent supporting investigations by the Office of Fair Trading (OFT) into local transport markets. Some of those investigations resulted in high profile critical reports and, in some cases, substantial fines. For example, In 2005, the OFT reported that the Cardiff City Transport Services Ltd had engaged in predatory pricing which amounted to an abuse of its dominant position in the “relevant market”. Essentially the Cardiff bus company responded to a no frills service offered by 2 Travel Group plc, by offering a similar service on identical routes at a much lower price. That price represented a cross-subsidised loss, until 2 Travel Group left the market when Cardiff bus company, having achieved its purpose of driving the competitor, 2 Travel Group from the market, also decided to withdraw the “no frills” Cardiff bus service.

In an earlier investigation, in 2002, the OFT had concluded that a market sharing agreement of bus routes in Leeds, operated by Arriva plc and First Group plc, was in breach of the Competition Act and heavy fines were imposed on both companies subject to any leniency applications.

There exists a view that these cases represented the limits of the OFT's patience with bus operators. In December 1997, an OFT Report, The Effectiveness of Undertakings in the Bus Industry (OFT, 1997), revealed the long dialogue between bus operators and the competition authorities. Undertakings rather than formal action had been “agreed” with a wide range of operators including National Express, Stage Coach, Southern Vectis, and Greater Manchester Buses but those undertakings were not working! The targeting of some bus operators was becoming inevitable, hence the Leeds and Cardiff cases. It seems that the story does not end with these cases and their warnings and messages to others. In one of its first announcements of 2010, the OFT revealed that it has referred the UK local bus services, excluding London and Northern Ireland, to the Competition Commission. The decision follows an OFT market study into the bus industry. The study found evidence that limited competition between bus operators tended to result in higher prices and fares for passengers with a lower quality of service. To the extent that over £1.2 billion from the public purse goes into that market each year, this also represents poor return and quality for the taxpayer: behaviours consistent with predatory pricing and market sharing were revealed by the OFT study. The Competition Commission will now consider all matters and, if required, take any remedial action deemed appropriate.

The messages are many in this tale. First, the need to manage relations with and “listen” to competition authorities. Remembering that those authorities have limited resources, it is important for businesses to be aware of public policy priorities (deregulation of bus markets). Second, deregulation will not per se result in competitive behaviour and cultures. Regulators need to recognise this and look to other actions to deliver the changes required.

It is these messages that we hope the readers of the papers in this issue will reflect upon. Corporate social responsibility needs to be strategic and seen to create a competitive advantage that impacts on the bottom-line. To prescribe reporting in the public interest ignores at its peril that the “business of business is business”. Similarly, the over regulation and prescription of financial markets and products, raises the dangers of failing to engage with both the cultural and competitive nature of the industry. Please read and consider.

James KirkbrideLiverpool John Moores University, Liverpool, UK