104/09    20 August 2009

The OFT has today published its market study into the supply of local bus services and proposes to refer the sector to the Competition Commission (CC) for more detailed investigation.

Read more information and Q&As. 

In a five-month investigation into the £3.6 billion industry, the OFT found evidence to suggest that limited competition may be leading to higher prices for bus users. 

The study has identified a number of features of local bus markets that could prevent, restrict or distort competition in the sector. These relate both to commercial services and services subsidised by local transport authorities. Issues include:

• a situation where the majority of local routes are operated by a small number of large bus companies
• higher fares in those areas where operators with a strong market position are not challenged by a large, well-resourced rival
• many complaints alleging predatory behaviour of incumbent firms designed to eliminate competition from new entrants, and
• low numbers of bids for supported service contracts in many areas, with just one bidder for a quarter of tenders.

John Fingleton, OFT Chief Executive, said:

'Our investigation has unearthed a range of evidence that suggests the market for local bus services is often not working as well as it should and may be resulting in higher prices for bus users. In addition, this is a market where an estimated £1.2bn comes from public subsidy so restricted or distorted competition can potentially have a significant impact on taxpayers.

We believe that the issues we have identified clearly justify a full investigation and we therefore propose to refer this sector to the Competition Commission.'

The OFT is seeking comments on its provisional decision to refer these markets.  Interested parties have until 15 October 2009 to submit their views. If a reference is made, the CC will conduct a detailed public investigation and reach its own conclusions. The CC can compel parties to submit particular evidence, and also has the power to impose remedies which go beyond the outcomes available from an OFT market study. 

NOTES

1. The OFT is proposing to refer the supply of local bus services in Great Britain, excluding London.

2. Download the OFT's market study Local bus services (pdf 1.06Mb)

3. The OFT estimates that the total size of local bus markets in Great Britain, excluding London, to be £3.6 billion of which £1.2 billion is public subsidy.

4. In November 2008, the OFT found that Cardiff Bus had engaged in predatory behaviour to eliminate a rival. See press release 133-08 for full details.

5. OFT market studies are carried out under Section 5 of the Enterprise Act 2002 (EA02) which allows a market-wide consideration of both competition and consumer issues.

6. Market studies involve an analysis of a particular market with the aim of identifying and addressing any aspects of market failure from competition issues to consumer detriment and the effect of government regulations. Possible results of market studies include: enforcement action by the OFT; a reference of the market to the Competition Commission; recommendations for changes in laws and regulations; recommendations to regulators, self-regulatory bodies and others to consider changes to their rules; encouraging firms to take voluntary action; campaigns to promote consumer education and awareness; 'a clean bill of health' for the industry.

7. Under section 131 of the EA02, the OFT may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom. Under section 133 of the EA02, the OFT has the power, among other things, to restrict the geographical scope of any reference made to the CC.

8. Under section 169 of the EA02, where the OFT is proposing to decide to make a reference to the CC it must first consult, so far as practicable, any person on whose interests the reference is likely to have a substantial impact. The paper published today sets out our proposed decision and invites comments by 15 October 2009.