Policy instruments (2) - Transport Policy and Planning in Great Britain - page 207

The promotion and protection of consumer interests generally is carried out by
the Office of Fair Trading (OFT) which can take enforcement action under the 1998
Competition Act. Its work is complemented by the Competition Commission which
undertakes inquiries into the workings of particular markets. The OFT has no direct
concern with substantive outcomes in transport or anything else (provided these are
a product of genuine competition). If these outcomes conflict with some other aspect
of the 'public interest' then it is for the Government, or industry-specific regulators to
take appropriate action.
The OFT cannot ensure that competition does take place in a particular market but
rather that the conditions exist where it can. This has three important ramifications:
• for the structure of the industry concerned
• for the behaviour of operators within the industry
• for the behaviour of regulators and other public bodies in their relationship with
the industry.
The structure of passenger transport industries
In principle competition requires there to be a number of suppliers in a market without
any one acquiring a dominant position such that it can exert a controlling influence.
Alternatively where in practice there is only a limited number - possibly a single
supplier - then competition should still be possible, i.e. there should be no insuperable
barriers to entry into the market by new suppliers. In Great Britain at the present time
the majority of road passenger services are run by five major companies. In theory
competition prevails between them and any further merger would almost certainly
prompt an investigation by the Competition Commission.
In many parts of the country however one or other of these companies enjoys a
'territorial monopoly' by virtue of its ownership of the garaging facilities and associated
vehicle fleets based in the larger towns. (There may be additional independent
companies in each case but these typically operate on a small scale on minor routes or
in more rural areas.) In practice it would be very difficult for another company to break
into such territories and mount a significant competitive challenge.
This situation is a very long way from the textbook version of competition
envisaged in the 1984 Buses White Paper (DTp 1984). Ironically however from
a passenger perspective the stability which now characterises local bus services is
much preferable to the 'bus wars' which afflicted some towns in the early years
following deregulation. A pragmatic compromise prevails, sustained by the major
companies not exploiting situations where they enjoy dominant positions (e.g. by
adopting differential fare levels). Such practices exist on a modest scale but are
kept in check by commercial self-interest for the longer term as well as the threat of
potential OFT investigation.
In the rail passenger industry (and buses in London) the introduction of franchising
arrangements rather than full deregulation means that competition is 'for' the market
rather than 'in' it. Instead of companies competing on a day-to-day basis through the
provision of services, they compete only intermittently for the award of a franchise
to run services. Once an award is made the successful company typically enjoys a
territorial monopoly on the routes concerned but consumer protection is achieved
through the terms of the franchise.