Looking back at 20 years of competitive tendering in the Norwegian bus industry – explaining cost increases and reduced competition

Abstract

Our paper investigates the developments in the Norwegian bus industry following the ramp-up of competitive tendering since the early 2000s. We analyse a complete dataset of all 232 local bus contracts awarded through competitive tendering in Norway since 1995. We also utilize the Central Register of Establishments and Enterprises (CRE) for structural developments in the bus industry. We first present some overall tendencies, including developments in number of bids per tender, contract size and cost developments. The average cost per kilometre has increased substantially more than the general rate of inflation. At the same time, the average number of bidders per contract has fallen moderately but steadily. Second, we build regression models to identify key drivers of cost developments. Contract sizes, in terms of vehicle-kilometres are found on average to be on the low side and an increase would reduce unit prices. We find as expected a significant effect of the number of bidders on unit prices. This leads us to a further investigation of factors explaining the number of bids per tender. We find that larger contracts tend to attract more bids, as do repeated tenders in the same area.