Emerging Competition and Market Power in Public Transport in the Netherlands

Emerging Competition and Market Power in Public Transport in the Netherlands


A Baanders, R Lebouille, S Rienstra, ECORYS/NEI Transport; M Kouwenhoven, Netherlands Competition Authority Nma; P van der Wilk, Ministry of Transport (AVV), NL



In Dutch public transport competition ?for the road? is gradually being phased in. Until the 1990s, the Netherlands had a very centralised system, in which the national government provided all operating subsidies and most of the finance for investment and therefore had dominant decision power. The national Ministry of Transport even played an important role in collecting the revenues, through the ?National Fare System? (of which the ?strip ticket?, valid everywhere in the country, is the best known feature).

The operators were publicly owned and there was no competition between them. In the 1980s, the disadvantages of such a centralised system became more and more apparent.

And this led to the implementation of fundamental changes in the 1990s, culminating in the ?Passenger Transport Act 2000?.

The first step was the transfer of financial decision power from the national government to 35 territorial authorities (all 12 provinces; a number of groupings of municipalities covering the most important urban areas; and a number of individual cities). These authorities became competent for governing and financing the public transport by bus, tram, metro and on the regional railways in their territory. The national government kept the control over the national railway network. The latter will not be discussed here, as its regime is substantially different. This decentralisation meant channelling the funds for subsidies and investment from the national government to these 35 authorities.

The next step, currently underway, is the gradual introduction of ?competition for the road? or ?controlled competition?, as set out by the ?Passenger Transport Act 2000?.

From 2001 to 2007, the territorial authorities are required to award concessions to operating companies. These concessions are for a limited period, include the subsidies and other payments by the authority, and are awarded in an open tendering process, according to the European rules. In order to get fair competition, the law also requires those authorities who own public transport companies, to relinquish this ownership.

It is important to note that in the case of ?competition for the road? or ?controlled competition?, there are in fact two related, but distinct markets. The traditional market is the one in which the operator offers his services to the traveller. For the duration of the concession, the operator is a monopolist and the traveller has little choice. The competition between operators takes place in the second market, in which the authorities tender their concessions. The influence of the traveller?s demand in this second market is indirect. It is this second market that is considered in this paper.

When the ?Passenger Transport Act 2000? was discussed in the Parliament, one of the concerns was that a few large operating companies might get monopolistic power in this new market. This might, it was feared, defeat the idea that competition would lead to a better deal for the authorities (in the form of lower subsidies and a higher quality of the services). Some articles in the draft Act limited the market share of individual operating companies to an (as yet) unspecified share of the relevant market. In the end, the Parliament ruled that these articles would not come into force immediately, but that the Minister of Transport could decide this at a later stage, based on an evaluation.

The authors were involved in this evaluation study, which was commissioned by the Ministry of Transport and done in 2002. This study considered:

* the results of the first tenders,

* the way the market started to develop in response to the ?Passenger Transport Act 2000?,

* and the possible effects of the ?market power articles? compared to the generic rules that already exist in the Dutch ?Economic Competition Act?.

It consisted of:

* an analysis of the first tenders,

* a series of interviews with stakeholders,

* a study of the structure of the public transport market and the way it is developing,

* a quantification of the ?relevant market?, using different criteria,

* a review of the pros and cons of specific competition clauses in acts pertaining to individual sectors of the economy, as opposed to the generic rules of the anti-trust laws (consisting of a theoretical review and a review of the way the question of specific versus generic rules is answered in different economic sectors), * and a scan of the relevant experience in a number of other countries.

The paper will describe these elements. This will include:

* the changes in ownership of a number of operating companies in recent years,

* the position of the large state-owned bus operator Connexxion (which also operates a light rail transit line and a regional railway line),

* the position of the two internationally operating companies Arriva and Connex/Vivendi that have become important players in the Dutch market,

* the role of the smaller operators,

* the possible future developments, when the former municipal operators in the largest Dutch cities will no longer be confined to their current territories,

* the way the territorial authorities are dealing with these developments,

* the peculiar role of the ?National Fare System?, which continues to be a centralised element in a decentralising system.

The ?Passenger Transport Act 2000? required the territorial authorities outside the large cities to have tendered 35% of their public transport services by the beginning of 2003.

This appears has not been achieved, however. The Ministry of Transport has started a large scale monitoring study to monitor further developments.

The study on competition and market power identified a number of market distortions, relating to the cost of entering and leaving the market, to the unequal access to market information, to the economies of scale, and to some differences between public and private companies. The scan of the experience in other countries, which have competition in public transport, showed that there are very few cases of sector specific regulation of competition, almost all countries relying on generic anti-trust regulation. At the same time, a tendency towards concentration in the public transport industry is visible in most countries, despite an absence of clear economies of scale and in most cases a limited profitability. It is noteworthy that the draft regulation as proposed by the European Commission does contain specific articles against market dominance (which are facultative).

The conclusion of the study was that the specific competition articles in the ?Passenger Transport Act 2000? would solve some of the market distortions, but would also have some disadvantages. E.g., excluding certain companies from tendering would lead in the short run to a reduction of the number of competitors in each of the tendering processes and not to more competition. The articles would mostly work indirectly, and there are alternatives that have a more direct influence.


Association for European Transport