In “Part 2. David Levinson’s CityLab discussion on transit: Competitive tendering,” she takes issue with whether Competitive Tendering was causal in increasing London transit ridership. Well, as we all know, nothing is provable (though many things are falsifiable), so we cannot prove causality. We can infer causality if we have a plausible causal mechanism and an appropriate time sequence. Clearly there is a time sequence. What is the causal mechanism? Competitive firms provide better quality of service than did the previous arrangement because they are rewarded for providing better service. Competitive firms have lower costs than long-entrenched public sector agencies.
Does this explain everything? Of course not (population increases, the congestion charge, increased total bus service, fuel prices, construction on the Underground also play a part).
Does it explain something? Probably. Can I show this statistically? Not right now since London is only one city and I don’t have route-by-route breakdowns of ridership and service quality before and after competitive tendering.
However London, even under “Red Ken” did not seriously consider undoing bus competition. They did undo the poorly conceived rail competition, so undoing policy was on the table. So I infer that it is working and one of the causes of ridership increases.
To be clear, the evidence is that differently structured (more monopolistic) franchises awarded in other UK cities did not see similar ridership increases, so the answer is quite complicated about how to configure to maximize consumer welfare, and experimentation is probably required. Just giving the system away is certainly not the answer. Having the franchises be of a limited duration (5-7 years, e.g.) is better than a 20-30 year franchise. This is feasible for buses where the capital is the ultimate in mobile capital. It would be much harder for a traditional utility where the infrastructure is expensive, embedded in the ground, and long-lived.
Some even more wonky papers on London Buses:
- Cantillon and Pesendorfer (2004) Chapter 22: Auctioning Bus Routes: The London Experience
- Kennedy (1995) London Bus Tendering: An Overview
- Hensher and Wallis (2005) Competitive Tendering as a Contracting Mechanism for Subsidising Transport: The Bus Experience