EVALUATION OF COMPETITION IN THE BRITISH LOCAL BUS INDUSTRY.

This paper discusses an analysis that concurs with the common view that competitive stimulus can result in lower-cost operation. The analysis concludes that a reduction in cross-subsidy, caused by competition on the more profitable routes and timings, will be beneficial. This result arises because cross-subsidy currently disguises some loss-making services that are provided needlessly, and is also an economically inefficient way, vis-a-vis direct subsidy, of funding unremunerative bus services. However, the analysis concludes that the current United Kingdom government's solution to this, of permitting competition between bus companies 'on the road', is also undesirable. This is because direct competition is liable to result in short-term waste and will not a priori lead to optimum provision in the long run.