Public funding to long distance buses: an entry barrier or a necessity?

Abstract

Despite the deregulation of the market, the Norwegian express bus market is heavily concentrated to one major actor; Nor-Way Bussekspress which is owned by 40 different bus operators. We investigate this lack of competiton. Although several entry barriers can be identified from a theoretical point of view, we find most of them to have negligible effects in the real world. One important entry barrier that we find is the fact that the main company, Nor-Way Bussekspress, receives public subsidies for certain local parts of their express routes, paid by local county councils. This not only guarantees a certain minimum of revenue, but is also an efficient barrier for potential operators to enter the market. However, this kind of arrangement has several positive effects. It makes a more extensive service possible, and diminishes the need for additional local public transport. Whether these benefits offset the welfare loss of reduced competition is an open question.