Discuss The Extent To Which The Local Bus Industry Essay

735 Words3 Pages
Deregulation is defined as the removal of regulations that act as barriers to competition in a market. And oligopoly is defined a market dominated by a few firms. The deregulation of a market is implemented through the removal of legal barriers to entry by the government, in an attempt to increase competition within the industry. In the case of the local bus industry this was through the Transport Act of 1985. It proposed the abolition of road service licensing and allowed for the introduction of competition on local bus services for the first time since the 1930s. The removal of licence requirement within the industry has made the market more contestable. In theory this would lead to deflationary pressures and an increase in the quality of the service provided. This is because new firms entering the market due to deregulation would have the incentive of lowering costs of production in an attempt to increase profits and be price competitive with the ‘big players’ already competing and dominating the market. The kinked demand curve shows how firms in an oligopoly are looking to protect and maintain their market share and that rival firms are unlikely to match another’s price increase but may match a price fall. To a large extent this has led to the local bus industry becoming an oligopoly at a local level where a single provider is the only firm truly competing and on a national level there is the occurrence of a monopoly where it is again these ‘big players’ who share between themselves a high concentration ratio of the national market. This is because those firms who own a large percentage of the market are able to benefit from barriers to entry in their favour. Examples of this would be the benefits of operating economies of scale or high set up costs. This would be an example of a natural monopoly where the monopolist has an overwhelming cost advantage.

More about Discuss The Extent To Which The Local Bus Industry Essay

Open Document