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The OFT has today referred UK local bus services, excluding London and Northern Ireland, to the Competition Commission (CC). 

This decision follows consultation on the results of an OFT market study into the industry. The study found evidence that limited competition between bus operators tends to result in higher prices and lower quality for bus users and may represent poor value for money for taxpayers.

The study identified a number of features of local bus markets that could prevent, restrict or distort competition. These relate both to commercial services and services subsidised by local transport authorities. Issues include:

• a stable and concentrated national market picture where large national operators appear to largely respect each others' territories;
• the majority of local services, in many different local areas, being operated by a small number of large bus companies;
• complaints alleging predatory behaviour of incumbent firms designed to eliminate competition from new entrants; and
• low numbers of bids for supported service contracts in many areas, with just one bidder for a quarter of tenders.

The study also found evidence that fares are higher in those areas where operators with a strong market position are not challenged by a large, well-resourced rival.

Heather Clayton, OFT Senior Director, said:

'One of the concerns that we think the Competition Commission should take a look at is the tendency for local areas to become dominated by a single operator. This is certainly not about a return to  'bus wars ' or unmanaged  'head to head ' competition on every route, but we do think large bus operators should face a healthy level of competitive constraints.

'Given the size and importance of this industry, with at least £1.2 billion coming from the public purse every year, the OFT believes that it is appropriate for the Competition Commission to investigate how, in its various forms, competition can be harnessed to deliver what passengers want and the best value for money for the tax payer.'

The OFT consulted with the industry, government, local authorities, trade bodies and others following its provisional finding that a market investigation reference should be made to the CC. The CC will now conduct a detailed public investigation and reach its own conclusions. It can compel parties to submit particular evidence, and also has the power to impose remedies which go beyond the outcomes available from an OFT market study.

NOTES

1. The decision document can be found at here.

2. In August 2009, the OFT consulted on its findings from its market study and its proposed decision to refer local bus markets in the UK, excluding London and Northern Ireland, to the CC, and invited comments by 15 October 2009. See press release 104/09.

3. The total size of local bus markets in the UK, excluding London and Northern Ireland, is significant: Size of local bus market by value at current prices, 2000/01 - 2006/07 (pdf 28kb)

4. OFT market studies are carried out under section 5 of the Enterprise Act 2002(EA02) which allows a market-wide consideration of both competition and consumer issues.

5. Market studies involve an analysis of a particular market with the aim of identifying and addressing any aspects of market failure from competition issues to consumer detriment and the effect of government regulations. Possible results of market studies include: enforcement action by the OFT; a reference of the market to the CC; recommendations to Government for changes in the law; recommendations to regulators, self-regulatory bodies and others to consider changes to their rules; encouraging firms to take voluntary action; campaigns to promote consumer education and awareness; 'a clean bill of health' for the industry.

6. Under section 131 of the EA02, the OFT may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or a part of the UK. Under section 133 of the EA02, the OFT has the power, among other things, to restrict the geographical scope of any reference made to the CC.

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