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Market Entry Barriers for Commercial Services

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Competition for Public Transport Services

Part of the book series: Contributions to Economics ((CE))

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Abstract

After decades of stagnation, the market for commercial public bus transport services in Germany is heating up, with observable competition on the rise. As explained in Sect. 4.4.3, the competitive market for commercial services is based on market initiative by operators and is distinguished from the competitive market for non-commercial services and from the market segment in which contracts are awarded, without tendering. The essay presented in this Chap. 10 asks whether the current level of competition is satisfactory and provides evidence of a thriving competitive environment, or whether it indicates the existence of barriers to market entry. If entry barriers are impeding more dynamic market development, the question arises where they can be identified.

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Notes

  1. 1.

    The examination is based on Beck (2009d, f) and Beck (2010b), a study completed in 2009.

  2. 2.

    This explanation is based on the framework presented in Sect. 4.3; the awarding schedule follows the illustration in Fig 7.1 presented in Sect. 7.1.

  3. 3.

    This holds even if competition does not actually arise due to the existence of only one bidder. Note that authority initiated CCL procedures with zero bidders, where delivering commercial services is not profitable from an operator point of view, are not included in the database III analyzed in this section.

  4. 4.

    An optimized structure of incentives to ensure that quality will be delivered as promised in the license term (fulfilling the incentive compatibility constraint for the licensee) is not part of this analysis.

  5. 5.

    The higher the number of bidders the higher the efforts of the winning bidder (see Laffont and Tirole 1993, pp. 309–318).

  6. 6.

    These included the Official Journal of the European Union and well-known information systems that specialize in public transport in Germany, i.e. Newstix, convia, and the Gesellschaft zur Information des Verkehrsgewerbes.

  7. 7.

    Sometimes a subdivision is necessary to define clear cases for further analysis.

  8. 8.

    Being a renewal of licenses, see Sect. 4.3.4 for a more detailed explanation.

  9. 9.

    The LA of Lower Saxony granted the license to the incumbent in 75% of all CCL procedures where there was an existing operator and more than one bidder. Note that the number of CCL procedures in database III differs because it includes authority initiated CCL procedures where only one bidder was observed.

  10. 10.

    The lack of detailed data available makes difficult any in-depth analysis of the experiences of CCL similar to Chap. 8 (e.g., with respect to the development of the level of quality, impacts for employees, …).

  11. 11.

    I chose tendering-database I instead of tendering-database II because only database I covers the same period (2003–2008) as database III, whereas tendering-database II includes data for 2009.

  12. 12.

    Interestingly, numerous cases in the Frankfurt am Main area and some in the Munich area show this difference in the same region.

  13. 13.

    These authority initiated CCL procedures are described in Table A.8 in Appendix A.3.1.

  14. 14.

    The empirical analysis is conducted using Stata for Windows 9.1. The 230 cases analyzed are the sum of n = 113 tendering procedures (database I) and n = 117 CCL procedures (database II).

  15. 15.

    Further results are in Table 10.2 below; descriptive statistics and the correlation matrix are in Tables A.12 and A.13 in Appendix A.3.2.

  16. 16.

    For a more detailed description of database III and a pairwise Pearson correlation matrix, see Table A.9 and Table A.10 in Appendix A.3.1.

  17. 17.

    Other than for CCL procedures, as shown by the empirical analysis of CCL database III, the empirical investigation of tendering-database I presented in Sect. 8.4.3 indicates that market entry barriers within tendering procedures exist for several parameters on a significant level. An empirical analysis of integrated database IV might identify additional impact factors on the level of competition. Since this latter analysis would presumably contain a bias with respect to (1) an awarding procedure and a market organization that differs substantially between CCL procedures and tendering procedures and (2) totally different empirical results (no relevant correlations identified for the CCL database, several such correlations identified for the tendering database), it will not be discussed further. Note that the assessment of a bias was affirmed by the results of an analysis in which a significant correlation with the dependent variable number of bidders per case was indicated for several parameters (e.g., negative correlation to federal states where only CCL procedures had been observed [especially Lower Saxony and North Rhine-Westphalia], positive correlation to the federal state Hesse, where most of the tendering procedures were conducted [63% of all n = 113 tendering procedures in database I]).

  18. 18.

    See Sterzenbach (2008, pp. 97 and 101) for examples on state and local levels and Sect. 5.4 as well as Hickmann et al. (2008) for an example of states that have revised their financing structure in recent years.

  19. 19.

    See Sect. 4.3.1 for more details on these compensatory payments.

  20. 20.

    See gross-cost contracts of RMV (2005) and MVV (2009).

  21. 21.

    See Sects.4.3, 7.1 and 10.2.1 for a detailed explanation of these procedures.

  22. 22.

    The institutional problem of overlapping responsibilities and areas of authority between LA and PTA in the three stages (see Werner 2001, pp. 161–165 among others) is not analyzed in detail here.

  23. 23.

    The PBefG states that “the formation of the PTP, decided on by the PTA, is mandatory. Further, in this plan existing transport structures have to be taken into account. In addition the formation of the plan has to involve existing companies and should not lead to unequal treatment of operators.” Barth (2001, pp. 63–64) favors the involvement of operators, since PTAs usually lack data about passenger figures, revenues and linkages in local public transport.

  24. 24.

    See Barth (2001, pp. 64–67) for a description of the unclear legal framework on this matter; according to Graetz et al. (2007, p. 14), at least 3% of the 150 PTAs in their database confirmed that their PTP was developed entirely by the incumbent operator.

  25. 25.

    Own calculation based on VRN’s publications in the Supplement of the Official Journal of the European Union up to December 31, 2008, verified with Michael Winnes, legal advisor to the VRN. To date, VRN is the only German PTA that has conducted numerous tendering procedures with net-cost contracts.

  26. 26.

    Since the court decision has not been released for the other 68 CCL procedures of the n = 117 CCL in database III, the total number of litigations may be greater than 49.

  27. 27.

    In particular, the Official German Contracting Terms for Award of Service Performance Contracts, Part A (Verdingungsordnung für Leistungen, Teil A – VOL/A).

  28. 28.

    On this issue see Werner (2001, pp. 102–103) and Sect. 4.3.2.

  29. 29.

    See Borrmann (2003, pp. 108–128) for this method in the public transport industry and Beck (2007, p. 429) for problems of multi-dimensional validation for CCL procedures. For more details on multidimensional auctions, see e.g., Branco (1997) and Che (1993).

  30. 30.

    See Borrmann (2003, pp. 129–140) for quality index in public transport services and Sect. 5.4.2 for a detailed explanation of the Wittenberg case.

  31. 31.

    This is one reason why this aspect is still in litigation as of the end of 2008, for the first Wittenberg case, where the LA first approved the best application form in October 2006 (according to Holger Zubke, Wittenberg district council).

  32. 32.

    The importance of a transparent validation procedure for awarding procedures in public transport to prevent uncertainty and encourage bidders to participate is confirmed by Amaral et al. (2008).

  33. 33.

    § 16 (2) PBefG permits a maximum of 8 years, the usual term for commercial services according to the experts interviewed.

  34. 34.

    See RMV (2005) and MVV (2009).

  35. 35.

    Procedural regulations for tendering are strongly and clearly regulated by national procurement law (see VOL/A as well as Klinger 2006, a.o.) and their execution is based on a history of best practices by several important PTAs (e.g., the awarding conditions of MVV 2009, based on awarding experience for more than 70 networks in the period 1996–2009; the awarding conditions of RMV 2005, based on awarding experience for 20 networks in the period 2003–2005; and VDV 2007).

  36. 36.

    See the case study on Saxony-Anhalt in Sect. 5.4.2 above. Despite these procedures, authority initiatives with start of operations in 2009 were identified for Brandenburg (1) and Lower Saxony (1) by the end of 2008.

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  1. Berlin, Germany

    Arne Beck

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Beck, A. (2012). Market Entry Barriers for Commercial Services. In: Competition for Public Transport Services. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2802-3_10

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