Westminsterresearch the UK Scheduled Express Coach Market
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WestminsterResearch http://www.westminster.ac.uk/westminsterresearch The UK scheduled express coach market – its economic structure and consequent entry, exit and operation by small and medium firms Reynolds, T. This is an electronic version of an MPhil thesis awarded by the University of Westminster. © Mr Tim Reynolds, 2018. The WestminsterResearch online digital archive at the University of Westminster aims to make the research output of the University available to a wider audience. Copyright and Moral Rights remain with the authors and/or copyright owners. Whilst further distribution of specific materials from within this archive is forbidden, you may freely distribute the URL of WestminsterResearch: ((http://westminsterresearch.wmin.ac.uk/). In case of abuse or copyright appearing without permission e-mail [email protected] The UK scheduled express coach market – its economic structure and consequent entry, exit and operation by small and medium firms By Timothy James Reynolds A thesis submitted in partial fulfilment of the requirement of the University of Westminster for the degree of Master of Philosophy July 2018 1 Abstract Following deregulation of the UK inter-city coach market through the 1980 Transport Act the network is now dominated by two firms giving cause to question the success of the policy and the processes enabling competitive freedom. A policy cornerstone was contestability, and though market entry by small and medium sized coach firms in the UK has not been sustained in large quantities, deregulation has arguably been successful in maintaining low prices and stimulating innovation and quality improvements. The research examines potential reasons for the lack of multiple firm activity in the UK given the freedoms afforded by the market structure and tracks changes in the market. Consolidating early academic work and filling knowledge gaps with non-academic and trade press data, the research also outlines economic market structures that characterise the market across the research period and which have influenced the success of deregulation. The research compares subsequently liberalised European markets with the UK, examining factors that have stimulated and suppressed market entry. The conclusions focus on factors that are critical to market success, such as: the requirement for a comprehensive network to maximise efficiency and reach; strong demand in both service directions; brand awareness (local level and/or nationwide); e-commerce platforms, and financial resources to mitigate losses while building market share. The research finds that entry by small and medium sized firms can only be sustained if at least one of these factors are present. In parallel the research demonstrates movement through several economic structures by each market, in-part meeting objectives set by Governments, and results in a cyclical model to show the likely lifecycle of a liberalised inter-city coach market. The research finds that settled state structures have provided such freedom that large firms may now more easily compete (retaliate) or change business models (switching the main role of competition away from the open market to new monopsonistic sub-markets) with monopoly control remaining in the open market - a policy failure perhaps but maintaining the mode as a viable competitor in the public transport mix. The main research finding is how e-commerce has shaped liberalisation, shortening early competitive phases, altering travel behaviour, and raising customer expectations – all creating new barriers for smaller firms but seeing an increase in use, reach and coverage for large firms and new opportunities for 'virtual' providers. 2 Acknowledgements The author would like to acknowledge the tireless support of Professor Peter White and Dr Rachel Aldred – their guidance and patience have been gratefully received and I would like to thank them for this. The author also acknowledges support from National Express as both an employer and funder of the research time required to complete this work. I would like to thank my family and friends who have helped me during the preparation of the thesis and offered tremendous support, help, and encouragement - particularly my Mum and Amanda. Authors Declaration I declare that all the material contained in this thesis is my own work. 3 Table of Contents Abstract ............................................................................................................. 2 Introduction ....................................................................................................... 7 Research Definitions ...................................................................................... 13 Methodology .................................................................................................... 15 Chapter 1 – Perfect Competition and Contestability ................................... 19 1.1 Overview ................................................................................................. 19 1.2 The market structure limits of the Act ...................................................... 20 1.3 Perfect Competition – conditions ............................................................. 22 1.4 Perfect Competition – critique ................................................................. 25 1.5 Perfect Competition – summary .............................................................. 28 1.6 Contestable Market Theory ..................................................................... 30 1.7 Contestable Market Theory – summary................................................... 38 Chapter 2 – Market theories enabling non-perfect competition ................. 40 2.1 Overview ................................................................................................. 40 2.2 Monopoly ................................................................................................. 41 2.3 Oligopoly ................................................................................................. 46 2.4 Monopsony .............................................................................................. 48 2.5 Monopolistic Competition (Imperfect Competition) .................................. 50 Chapter 3 – The UK express coach market .................................................. 56 3.1 Overview ................................................................................................. 56 3.2 Summary of events before 1980 ............................................................. 58 3.2.1 Early years ........................................................................................ 58 3.2.2 Coach Pools ..................................................................................... 63 3.2.3 Exogenous factors triggering operator innovation ............................. 66 3.2.4 Nationalisation .................................................................................. 68 3.2.5 The decade prior to deregulation – the 1970s .................................. 69 3.2.6 The stimulus for change .................................................................... 74 3.3 Deregulation – the 1980 Transport Act .................................................... 76 3.4 Deregulation – barriers to entry ............................................................... 80 3.5 Deregulation – short term activity ............................................................ 82 3.6 Deregulation – the British Coachways consortium .................................. 87 3.7 Deregulation – other market developments ............................................. 93 3.7.1 Competition quickly moved to co-operation ...................................... 93 3.7.2 Innovations in service quality ............................................................ 94 3.7.3 The British Rail response .................................................................. 97 3.7.4 Niche market services ....................................................................... 99 3.7.5 Further deregulation and privatisation............................................. 102 4 Chapter 4 – Medium and long-term effects of the Act ............................... 105 4.1 Overview ............................................................................................... 105 4.2 Deregulation – the 1990s ...................................................................... 107 4.3 Deregulation – 2000 to 2010 ................................................................. 112 4.4 Megabus, technology and beyond 2010 ................................................ 114 4.4 Overall financial performance of National Express ................................ 121 Chapter 5 – Liberalisation case study: Sweden ......................................... 123 5.1 Overview ............................................................................................... 123 5.2 The market before liberalisation ............................................................ 124 5.3 The market since liberalisation .............................................................. 126 5.4 Sweden Summary ................................................................................. 129 Chapter 6 – Liberalisation case study: Norway .......................................... 131 6.1 Overview ............................................................................................... 131 6.2 The market before liberalisation ............................................................ 132 6.3 The