Bus deregulation: ten years on

This paper identifies the principal areas of disagreement in the bus policy debate of 1984–85, and reviews the outcome of bus deregulation against that background. It is concluded that the commercial bus market is imperfectly contestable. Entry may occur where the incumbent is inefficient, where the incumbent is efficient but weak enough to be supplanted, or simply through over‐optimism. Incumbents deter entry by tightly controlling costs and by not leaving profitable gaps in service. Merger and acquisition is normally a better strategy than active competition; the tendency to merger has proved stronger than was recognized in the debate. In considering market performance, it is necessary in principle to distinguish between the effects of privatization, subsidy withdrawal, tendering and the abolition of the route licensing system, while recognizing that they interrelate in a complex way. Operating costs have fallen much more sharply than the opponents of deregulation expected. Service levels have risen, but so have real fares. Patronage has fallen faster since deregulation than its historic trend, leaving cost per passenger journey little changed. However, the tendering regime in London has performed much better than full deregulation, with similar (and continuing) reductions in operating costs, little change in patronage and a significant reduction in cost per passenger. Though it may not achieve all the dynamic benefits of full deregulation, tendering avoids wasting resources in competitive battles, offers the opportunity to balance fares and service policies efficiently, and avoids the loss of consumer confidence associated with instability. Finally, the loss of the ability to use local bus services as an instrument of urban planning policy is now recognized as important; here too a tender or franchise regime has the edge over full deregulation.