Deregulation, Competition, and Consolidation: The Case of the German Interurban Bus Industry
Kai Hueschelrath, Centre for European Economic Research (ZEW), Niklas Duerr, Centre for European Economic Association (ZEW)
We use a unique route-level dataset to study the potential price effects of the recently announced merger plans of the two largest players in the German interurban bus industry (MeinFernbus and FlixBus).
Since the beginning of the deregulation movement in the 1970s in the United States, many formerly regulated industries in a large selection of countries have been (either fully or at least partially) liberalized – with so-called network industries being a major focus of these initiatives. By initiating and implementing deregulation processes, policy makers aimed at increasing economic efficiency through the promotion of competition and – at the same time – reducing the amounts of subsidies paid to the respective sectors.
Although deregulation processes were initiated in many industries and countries in the last decades, a mixture of public policy arguments and lobbying activities delayed the implementation of such processes in several industries or sectors. For Germany, this description applies to the interurban bus market. Since 1931, bus companies were prohibited by law to offer intercity services (above a travel distance of 50 kilometers) aiming at protecting the core business of the state-owned (more or less monopolistic) railway company Deutsche Bahn AG. Exceptions (later) only applied to connections to/from former West Berlin (operated by Berlin Linien Bus) and international connections by providers such as Eurolines Germany.
The regulation of the German interurban bus industry remained intact until 2009 when the German government announced plans to liberalize the industry (responding to political pressures from the European Union). In the same year, three students established the company DeinBus which, whenever a sufficiently high number of travelers to one destination were found, rented a bus for them. Additionally, Deutsche Bahn started to operate its own busses at the time. Despite several attempts by Deutsche Bahn to prevent any further deregulation of the industry, the German interurban bus market was fully liberalized in January 2013.
Against this background, we use a unique route-level dataset to study both competitive interaction in the industry in general and the potential consequences of the recently announced merger plans of the two largest players – MeinFernbus and FlixBus – in particular. Our empirical results suggest that the price level generally depends on factors such as trip duration, the number of
competitors, the availability of railway services as well as the overall population and its average income. We further find that the proposed merger can be expected to lead to price increases of about 5 percent on routes where the merging firms competed directly before the merger. We use our empirical results to discuss several important policy implications.
Association for European Transport