The competition between stage service bus operators which will be allowed by the 1985 transport act has been investigated by modelling competition between two (and sometimes three) bus operators along a single high-density route. The intention was to see what amount of service each company would be likely to operate and at what fare, and whether the competition would lead to a situation in which competing operators could co-exist or whether the operator with the lowest costs would be able to price his competitors off the road. In the modelling each operator is assumed to maximise some objective function: this was usually taken to be maximising patronage subject to a fixed level of profit but the less likely objective of maximising profits was also considered. Various cost options were considered (i) the original operator is unable to reduce his unit costs when a competitor appears with lower costs; (ii) both companies try to match each other's cost reductions; (iii) both companies reduce their own costs in response to the amount of competing service. The results showed that, whatever way the details of competition affected the costs, under most conditions a given route is likely to be operated by more than one company only if their costs are very similar; if one operator can reduce costs to less than 90 per cent of the other then the cheaper one can drive his competitor out of business. When competition exists along the same route however, it is likely to result in rather more service, at higher fares, than is optimal, in the sense that less service and lower fares for the same level of operating cost, would attract more passengers in total. (Author/publisher)
Abstract