MANY COMMENTATORS HAVE REPORTED THAT A COMMON REASON FOR REGULATING LOCAL BUS SERVICES HAS BEEN THAT THE COMPETITIVE BENEFITS TO CONSUMERS ON A COMPLETED ROUTE - FROM REDUCED FARES, WAITING TIMES AND CONSEQUENT GENERATED TRAFFIC - ARE OUTWEIGHED BY THE ADDITIONAL RESOURCE COSTS INVOLVED IN COMPETITION. THIS NOTE INVESTIGATES THE CONDITIONS UNDER WHICH THE ARGUMENT HOLDS. A COST-BENEFIT MODEL OF A BUS ROUTE, BASED ON A STANDARD SOCIAL WELFARE APPROACH, WAS DEVELOPED. THE BENEFIT OF BUS TRAVEL, TO PASSENGERS, IS MEASURED BY THE AREA UNDER THE DEMAND CURVE BUT ABOVE THE GENERALISED COST OF TRAVEL. THEREFORE, A MARSHALLION MEASURE OF SURPLUS IS BEING USED. IN ADDITION TO THIS BENEFIT TO CONSUMERS, A PRODUCERS' SURPLUS IS INCORPORATED IN THE MODEL. THIS IS THE DIVERGENCE (POSITIVE OR NEGATIVE) OF REVENUE FROM COSTS. COSTS ARE ASSUMED TO BE A FUNCTION OF THE FREQUENCY OFFERED BY THE BUS COMPANY. IT APPEARS FROM THE RESULTS THAT IN THE SHORT RUN ANY ADDITIONAL CAPACITY INTRODUCED BY A COMPETITOR WILL LEAD TO A REDUCED LEVEL OF SOCIAL WELFARE.
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