Cumulatively this type of competition in a market has negative effects, “can lead to congestion, pollution, and instability of services.” Large companies that actively compete are likely to loose out in the long run due to the nature of the Kinhed demand curve theory suffering, as we all become worse off.
B) Following the deregulation of the bus market a number of changes have occurred since the mid 1980’s to mid 1990’s. Buses have become nearly 50 % more efficient with a 42% drop in cast of running and operating per mile. This could be due to improvements in technology and transport replacing older models or the fact the firms have to be just generally more efficient to survive when there is high competition. Maintenance cost may have fallen because of economies of scale with firms buying bulk parts, as buses are identical. The area of service has increased by 24% providing transport to more remote areas. This is a large benefit to consumers where routes are subsidised by busier routes to provide an overall more beneficial scheme. This figure could also mean the frequency of buses has increased, again another improvement of the service.
The operating costs for passengers has remained constant as no extra on board services are required. The only areas, which could increase, are both littering and vandalism and these are both controllable with restrictions.
A slightly negative aspect for the industry is the actual use of the buses has decreased by 27% with alternative modes of transport being more attractive, and the cost of cars becoming more affordable.
The figures highlight an area where cost cutting has occurred with a drop in wages for drivers in order to reduce prices.
Either a cause or result of the decline in the bus transport market is the reduction and investment from the government and local authorities. This is mainly due to privatisation and other firms investing in the market since deregulation occurred.
C) The bus transport market is an oligopoly led by a small number of large firms. “ Stagecoach 32.9%, go ahead 28.4%, North East Bus 16.7%.” Differentiation is minimal with all services similar except for the routes they run and frequency.
A contestable market has few or no barriers to entry and exit. Entry costs would be low or recoverable on exit. No specific capital is used capable of transfer to other uses. There will also be no sunk costs. To identify the bus market we must analyse the barriers.
The bus transport market does have capital costs, a barrier to entry, however only one small office would be required to run a firm posing minimal costs. The buses however may build up capital costs but can be bought second hand which is currently in good supply so the price is reasonable. In the event of leaving the market all capital costs could be recovered as not specialist to a particular use. Sunk costs usually arise from advertising schemes. Due to the nature of the market advertising is not necessary, as consumers will get on the first bus to arrive regardless of the firm running it.
There are relatively few economies of scale in the market, including managerial with fewer managers needed for one large firm as apposed to more for each smaller firm. Bulk buying in terms of fuel and buses may also have an impact.
Again legal barriers are low with permits or licences for running a bus route being inexpensive and easily obtainable form the government. As previously mentioned branding and non-price competition is not needed so there are no marketing barriers.
Due to these factors and the lack of evidence of substantial barriers to entry and exit in the bus transport market I would describe the market as almost perfectly contestable with slight restrictions such as predatory pricing.
