Abstract
In this paper consumers are assumed to opt for private or public transport as a long-term decision, and this is influenced by their incomes. Those consumers who have opted for public transport then choose the particular services which are least costly in terms of both price and convenience. This two-stage framework involves elements of both vertical and horizontal product differentiation, and yields a new perspective on the effects of bus deregulation. It is found that allocative inefficiency from deregulation can be substantial, and can amount to a third of the costs of operating the bus system. (Author/publisher).