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Local bus services

Launched: March 2009

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Purpose of the study

The OFT already had some information about local bus markets from its work on mergers and dealing with complaints. In particular, the following factors influenced the OFT's decision to carry out this market study:

  • evidence from merger enquiries that suggested that local markets were more profitable once they were monopolised

  • our investigation of and decision against Cardiff Bus for predatory behaviour and a number of other allegations of exclusionary behaviour in bus markets across the UK, and

  • concerns about the rising cost of bus services, both for commercial services and for supported services, and whether this may be, in part, related to weak competition.

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Findings

Neither the commercial nor supported parts of the markets appear to be working well for bus passengers or the taxpayer.

On commercial services:

  • We found that markets tend to concentration (monopoly or near-monopoly) at the route, local and regional level.

  • We found that there were a number of barriers to entry to local markets that make it difficult for new operators to get into these concentrated areas. This included aggressive response by the incumbent bus operator designed to damage the incoming rival. 

  • We also found that operators with a strong market position charge nine per cent more than operators who are challenged by a large well resourced rival.

  • The concessionary fares regime (which is paid for by the tax payer) may be distorting the market.  We have concerns that bus operators have been able to manipulate the regime to increase the amount they are paid for providing concessionary services.

On supported services:

  • We found that in some areas supported services receive low numbers of bids in response to tenders - more bids tends to mean lower prices so this is a concern. Roughly a quarter of all tenders only receive one bid.

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Recommendations

None.

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Action following market study

The OFT referred the supply of local bus services in Great Britain, excluding London, to the Competition Commission. For more information see the Local Bus Service market investigation reference page.

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Market study details and report

Read the press release 'OFT proposes referral of local bus services to Competition Commission' 20 August 2009

Download the consultation document 'Local bus services: Report on the market study and proposed decision to make a market investigation reference' August 2009 (pdf 1.06 mb)

Read the local bus services Q&As

Download Additional note on price concentration analysis 'Local bus services additional note on price concentration analysis' October 2009 (pdf 768 kb).

See press release OFT refers local bus servicse to Competition Commission 7 January 2010.

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Background information

See press release 'Cardiff bus engaged in predatory conduct against competitor, OFT decides' 18 November 2008.

See press release 'OFT launches market study into local bus services' 5 March 2009.




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