The London Bus Tendering Regime – Principles and Practice[1]
Toner, JP[2]
Institute for Transport Studies, University of Leeds, LS2 9JT, UK
email: jtoner@its.leeds.ac.uk telephone: 00 44 113 233 6617 fax: 00 44 113 233 5334 …show more content…
If all goods are offered at the same price consumers will differ as to their most preferred choice – for example, with a 30 minute headway, the 1000 departure may be chosen over the 0930 or 1030 departure for some consumers. Hotelling (1929) showed that, in a spatial context, competition would lead to a lesser degree of differentiation than optimal. Transferring this line of reasoning to a temporal setting, suppose a new entrant wished to come in and supply two buses an hour. The optimum for society would be for the entrant to run at 10.15 and 10.45; however, the optimum for the entrant would be to run just in advance of the existing services (“head-running”). Evans (1987) showed that, overall, small group competition would lead to a higher fare/higher frequency regime than is optimal, representing a welfare loss of between 10% and 12% compared to a perfectly planned regime that maximised net economic benefit subject to a budget constant. Tendering can in principle help move the outcome towards the optimum by encouraging coordination rather than …show more content…
Its use will enable potential economies of scale and/or scope to be realised without wasteful or destructive competition. Even then, a number of conditions are required for it to be successful:
• it is vital for the authority to maintain workable competition for tenders. Without this, there is no (or limited) competition for the market with implications for the price paid by the authority and for allocative efficiency;
• the service to be supplied must be specified, at least in part, in advance. Fuller specification tends to suggest gross cost contracts with the authority planning and coordinating the network. Less precise specification leans towards net subsidy contracts with the operator having at least some role in network design; it also suggests area or corridor contracts rather than route-based tenders;
• ideally, revenue risks would be shared between the authority and the operators. However, this is not possible with a gross cost regime and requires mechanisms for allocating revenue from inter-operator
Toner, JP[2]
Institute for Transport Studies, University of Leeds, LS2 9JT, UK
email: jtoner@its.leeds.ac.uk telephone: 00 44 113 233 6617 fax: 00 44 113 233 5334 …show more content…
If all goods are offered at the same price consumers will differ as to their most preferred choice – for example, with a 30 minute headway, the 1000 departure may be chosen over the 0930 or 1030 departure for some consumers. Hotelling (1929) showed that, in a spatial context, competition would lead to a lesser degree of differentiation than optimal. Transferring this line of reasoning to a temporal setting, suppose a new entrant wished to come in and supply two buses an hour. The optimum for society would be for the entrant to run at 10.15 and 10.45; however, the optimum for the entrant would be to run just in advance of the existing services (“head-running”). Evans (1987) showed that, overall, small group competition would lead to a higher fare/higher frequency regime than is optimal, representing a welfare loss of between 10% and 12% compared to a perfectly planned regime that maximised net economic benefit subject to a budget constant. Tendering can in principle help move the outcome towards the optimum by encouraging coordination rather than …show more content…
Its use will enable potential economies of scale and/or scope to be realised without wasteful or destructive competition. Even then, a number of conditions are required for it to be successful:
• it is vital for the authority to maintain workable competition for tenders. Without this, there is no (or limited) competition for the market with implications for the price paid by the authority and for allocative efficiency;
• the service to be supplied must be specified, at least in part, in advance. Fuller specification tends to suggest gross cost contracts with the authority planning and coordinating the network. Less precise specification leans towards net subsidy contracts with the operator having at least some role in network design; it also suggests area or corridor contracts rather than route-based tenders;
• ideally, revenue risks would be shared between the authority and the operators. However, this is not possible with a gross cost regime and requires mechanisms for allocating revenue from inter-operator