Competition and Regulation in Local Bus Services

Transcription

1 Competition and Regulation in Local Bus Services Philippe Gagnepain Paris School of Economics-Université Paris 1 philippe.gagnepain@univ-paris1.fr (+33)

2 Overview Academic research perspective. Competition on the road: UK Industry not contestable. Capacity competition. Competition for the market: France Risks of collusion among bidders. Regulation and incentives: France Political capture.

3 Competition on the road: Entry is unsuccessful The industry is not perfectly contestable Beesley (1990), Evans (1991), Banister (1997), De Borger and Kerstens (2006), Langridge and Sealey (2000), van der Veer (2002), and Wand and Yang (2005). Existence of barriers to entry: Access to bus stations, use of travel cards, convenient terminal positions, access to bus stations, information points. Sunk costs: trained staff, rolling stock. Economies of experience, scale, density, and scope. Incumbent can reduce prices very quickly or runs more buses and increases the frequency of the service.

4 Competition on the road: In price or frequency Wang and Yang (2005), and Van Reeven and Janssen (2006). Two firms with distinct qualities of service and different fares. Not relevant Competition takes the form of service wars with fare matching. Consumers do not care for quality and board the first bus that arrives. Frequency is the key factor for competition.

5 Competition on the road: Random schedules Ellis and Silva (1998), Oldale (1998), Van Reeven and Janssen (2006), and Gomez-Lobo (2007). Incentive to drive in front of each other: Head running and leapfrogging. Bus operators randomize arrival schedules at the bus stop. No commitment on timetable information. Set the highest possible prices.

6 Competition on the road: A research agenda Most contributions of the economic literature are theoretically derived. Need to be empirically validated. Estimate a cost function to evaluate economies of scale and scope. To detect predatory practices, compare prices to marginal and average costs (Motta, 2004). To test for price competition: Estimate a structural model, demand function and price equation (Davis and Garces, 2010). Reduced form: Effect of the # of firms on prices and frequencies. Additional thoughts: Gagnepain, Ivaldi, and Vibes (2011).

7 Competition for the market: Key issues Urban transportation service concession awarded through a tender. Risk of collusion among bidders: France In theory, competitive tendering since Four corporations (Keolis, Connex, Transdev, and Agir). Contract length: 5-6 years on average. Groups committed to geographical areas: Very few changes of operators since One single bidder in a majority of cases (see decision 05-D-38 of the Conseil de la Concurrence) Should the recent Transdev-Veolia merger have been approved? Efficiency gains trough the merger; less competition ex-ante. Gagnepain, Ivaldi, Martimort, Pouyet (2012): Merger Guidelines for Bidding Markets. 7

8 Competition for the market: Key issues Risk of collusion among bidders: France Long term relationship over several periods. Contract renegotiation The regulator strategically uses information from one period to another: Cost and/or choice of contract. The operator may shirk to avoid revealing information. Higher welfare if commitment. Ability of the regulator to commit to the same contract over time: Contract length? Gagnepain, Ivaldi, Martimort (2011). 8

9 Regulation incentives and political capture (Re)Negotiation versus competitive tendering: Cost-plus contracts (ex-post costs fully reimbursed) are still intensively used in France. Choice of contract important issue Incentives to reduce costs. No regulatory agency; politicians. Asym info, unsophisticated. Regulators may favor interest groups and choose one regulatory scheme or another. Unions versus stakeholders. Political color of the regulator, preferences of the operator, characteristics of the service. Important consequences on operating and social costs. Gagnepain and Ivaldi (2011), Chong, Staropoli, and Yvrande-Billon (2011) 9

10 Main lessons Competition on the road seems limited. Organizing an efficient procedure to promote competition for the market is a complex task. Need for an independent regulatory agency. Benefits? Reduce asymmetric information. Avoid costly renegotiation. Avoid political capture. Welfare gains are known Cost? philippe.gagnepain@univ-paris1.fr (+33)