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• If one competing bus operator can reduce his costs

17th January 1987
Page 21
Page 21, 17th January 1987 — • If one competing bus operator can reduce his costs
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Which of the following most accurately describes the problem?

to 90% of the other's he can drive his competitor out of business, says a newly-published Transport and Road Research Laboratory report. This was based on a theoretical model of two operators maximising patronage while breaking even with an adequate profit margin.

But it points out that a route is likely to be operated by more than one company only when their costs are similar.

A rival company setting up to challenge an existing operator was unlikely to gain more than a small share of the traffic unless his unit costs were at least 8% lower than the established operator. If the established company could lower its costs the new comer's market share would be very small, and if both operators' costs fell to 65%, the newcomer could not break even.

Three-operator competition was also studied, but it always reduced to two operators.

TRRL report RR72, Competition between bus services, the results of a modelling exercise, is available at £3 from TRRL, Old Wokingham Road, Crowthorne, Berkshire RG11 6A11.


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