QUALITY COMPETITION IN BUS SERVICES: SOME WELFARE IMPLICATIONS OF BUS DEREGULATION.

A THEORETICAL MODEL IS DEVELOPED BASED UPON THE QUALITY OF COMPETITION TO ENABLE THE DETERMINATION OF EQUILIBRIUM QUALITY AND FARE LEVELS. COMPETITION IS WHERE HIGH-QUALITY, HIGH-FARE MINIBUSES COMPETE (AND CO-EXIST) WITH LOWER-FARE, LOWER-QUALITY CONVENTIONAL BUSES. COMPETITION IN THE BUS INDUSTRY HAS INCREASED FROM THE LOW LEVELS EXPERIENCED JUST AFTER DEREGULATION AND THERE HAS BEEN A VERY RAPID GROWTH OF MINIBUS SERVICES. THE MODEL IS USED TO SHOW THAT TWO FIRMS OPERATING BUS SERVICES OF DISTINCT QUALITIES CAN EXIST IN COMPETITIVE EQUILIBRIUM IN URBAN AREAS. THE RESULTING EQUILIBRIUM IS USED TO ANALYSE THE EFFECT ON WELFARE COMPETITION AS OPPOSED TO THE MONOPOLY SITUATION BEFORE DEREGULATION. CONSUMERS COULD BENEFIT FROM COMPETITION IF THE PUBLIC MONOPOLIST OPERATED AT A HIGH PROFIT, BUT IT IS LIKELY THAT ALL CONSUMERS WILL FIND THEIR WELFARE REDUCED WITH COMPETITION. THE MODEL ALSO PREDICTS THAT, AT MOST, TWO QUALITIES OF SERVICE CAN CO-EXIST, GIVEN CERTAIN RANGES IN THE INCOME DISTRIBUTION. THIS SUGGESTS THAT THERE IS VERY LITTLE SCOPE FOR FURTHER BUS OPERATIONS WITH DISTINCTLY DIFFERENT MIXES OF FARE AND QUALITY. WHERE THERE IS ALREADY COMPETITION BETWEEN BUSES AND TAXIS, THERE MAY BE NO SCOPE FOR MINIBUSES.