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Red Bus and Leopard Coachlines

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Red Bus and Leopard Coachlines Public Version ISSN NO. 0114-2720 J5363 Commerce Commission Decision No 467 Determination pursuant to the Commerce Act 1986 in the matter of an application for clearance of a business acquisition involving: RED BUS LIMITED and LEOPARD COACHLINES LIMITED The Commission: MJ Belgrave D Bates QC P JM Taylor Summary of Application: The acquisition by Red Bus Limited of the business of Leopard Coachlines Limited, being the business of operating certain urban bus routes operated by Leopard. The assets of the business, as set out in the Sale and Purchase Agreement are the contracts for operation of the bus routes, the buses themselves, goodwill, plant and equipment. Determination: Pursuant to section 66(3)(a) of the Commerce Act 1986, the Commission determines to decline clearance for the proposed acquisition. Date of Determination: 30 July 2002 CONFIDENTIAL MATERIAL IN THIS REPORT IS CONTAINED IN SQUARE BRACKETS THE PROPOSAL ....................................................................................................................1 THE PROCEDURES...............................................................................................................1 THE PARTIES.........................................................................................................................1 Red Bus..................................................................................................................................1 Leopard ..................................................................................................................................2 Other relevant parties..............................................................................................................2 Canterbury Regional Council (Environment Canterbury).....................................................2 Transfund New Zealand.........................................................................................................2 Bus and Coach Association ...................................................................................................2 Other Bus and Coach Operators ............................................................................................3 INDUSTRY BACKGROUND ................................................................................................3 Transport in Christchurch ......................................................................................................3 Regulatory Environment........................................................................................................3 Transport Services Licensing Act 1989.............................................................................4 Transit New Zealand Act 1989 and the 1995 Amendment................................................4 The Land Transport Act 1993............................................................................................5 Commercial and Subsidised Services in Christchurch ..........................................................5 Contracted (Subsidised) Services ......................................................................................5 Tender evaluation process..........................................................................................................5 Fares and subsidies ....................................................................................................................6 Bus requirements .......................................................................................................................7 Operation and monitoring of contracts ......................................................................................7 Commercial Services .........................................................................................................8 Patronage Funding .................................................................................................................9 Recent Cases ..........................................................................................................................9 Decision 318: New Zealand Bus Limited/Transportation Auckland Corporation Limited ............................................................................................................................................9 Decision 326: NZBL/TACL ............................................................................................10 Decision 460: New Zealand Bus Limited and Wellington Regional Rail Limited/Tranz Metro (Wellington). .........................................................................................................10 MARKET DEFINITION ......................................................................................................11 Product Dimension...............................................................................................................12 Demand-side substitution.................................................................................................12 Supply-side substitution...................................................................................................13 Undifferentiated/Differentiated Products.........................................................................13 Relevant markets..............................................................................................................13 Geographic Extent ...............................................................................................................14 Functional Level ..................................................................................................................15 Conclusion on Market Definition ........................................................................................16 COMPETITION ANALYSIS...............................................................................................16 Substantially Lessening Competition ..................................................................................16 The Counterfactual...............................................................................................................18 Leopard’s decision to exit the market..............................................................................18 Acquisition of Leopard by a third party...........................................................................18 Further submissions from Red Bus and Leopard on the counterfactual..........................19 Table 1: Red Bus and Leopard submissions against the Commission’s proposed counterfactual and the Commission’s responses .....................................................................19 Proposed counterfactual...................................................................................................21 Conclusion – Competition Analysis Principles ...................................................................22 ANALYSIS OF EXISTING COMPETITION....................................................................22 Introduction..........................................................................................................................22 Scope for Unilateral Market Power .....................................................................................22 Introduction......................................................................................................................22 Market shares...................................................................................................................23 Inter-firm Relationships.......................................................................................................23 Safe Harbours.......................................................................................................................23 ANALYSIS OF EXISTING COMPETITION IN THE BUS SUBSIDIES MARKET ...24 Existing Participants ............................................................................................................24 Ritchies ............................................................................................................................24 IPT....................................................................................................................................24 [ ].........................................................................................................................24 [ ].................................................................................................................................25 Geraldine Transport Service (“GTS”) .............................................................................25 Market Shares ......................................................................................................................25 Table 2: market shares for subsidised services................................................................25 Trend in the number of bidders since 1999 .........................................................................26 Table 3: number of bidders for each contract tendered since 1999 .................................26 Competition for subsidies ................................................................................................27 Competition from existing operators .......................................................................................27 IPT............................................................................................................................27 Ritchies ....................................................................................................................28
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