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Bus Transport.

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Introduction

Bus Transport A) The nature of the competition in the bus transport market is very specific. The article suggests competition is used to keep out new entrants to the market thus maintaining market share for the larger firms, "active competition takes place between small operators or between a large and a small operator." Further evidence suggests the competition was not of substantial benefit to the consumer and only used to get one over on the firms rivals, "more services run on routes which where already reasonably well serviced." However some methods of competition showed reasonable benefits to consumers, "charged lower fares than the incumbent." Yet in the long run predatory pricing is not a good thing, as it will eventually push out competition, creating a monopoly where the price will soon go back up again. Non-price competition is lacking in the market, " difficult for suppliers to differentiate their products." ...read more.

Middle

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. ...read more.

Conclusion

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. James Pettipher ...read more.

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