Rail and Coach Competition: Midland Main Line Study
BATES J J, John Bates Services and TERZIS G, The MVA Consultaney, UK
Following the award of the Midland Main (MML) rail franchise to National Express Group (NEG) who also run coach services in the same corridor, the case was referred to the Monopolies and Mergers Commission (MMC) in summer 1996. The MMC review focused on t
Following the award of the Midland Main (MML) rail franchise to National Express Group (NEG) who also run coach services in the same corridor, the case was referred to the Monopolies and Mergers Commission (MMC) in summer 1996. The MMC review focused on the effects of the merger on prices and competition.
MML connects central London with five main destinations in the Midlands: Leicester, Nottingham, Derby, Chesterfield, and Sheffield. Coach and rail traffic account nearly for all public transport trips in the corridor, the other major competitor being the private car.
The study described in this paper contributed to the quantitative evidence assessed by MMC. It centred around the concepts of cross-price and own-price elasticities of demand for travel with respect to fares. Whilst there has been substantial research conducted into the elasticities of rail travel and urban bus travel, there has been relatively little past work on the elasticities of long distance coach travel. Hence there was a need to undertake some fimdamental research into elasticities, and particularly cross-elasticities with respect to fares of the alternative public transport mode. Stated Preference (SP) surveys were carried out on rail and coach along the corridor, and analysed to derive monetary values of major attributes of travel such as in-vehicle time and frequency. However, while these provide an appropriate definition for "generalised cost", they do not in themselves provide reliable estimates of demand sensitivity to estimate elasticities. Consequently, a simple Revealed Preference (R_P) model was calibrated from point-to-point patronage data of rail and coach, using the SP- derived generalised cost formulae, and appropriately scaled elasticities were derived from this.
The model could then be used to derive cross-elasticities of rail and coach demand with respect to each other's fares. However, given that the surveys and RP data did not cover all relevant alternatives, i.e. in particular car and the option of not travelling, all these elasticities were conditional on public transport being chosen. In order to obtain the unconditional elasticities required for a full analysis of the market an adjustment was necessary.
This was achieved with resort to theory and an assumption that the (unconditional) rail own-price elasticity is already known (from external data). It was assumed that the choice between rail and bus could be embedded in a more general travel demand model structure.
The paper describes the study approach in some detail, with emphasis on a number of important issues in the estimation of elasticities in such circumstances, leading to conclusions on the relative magnitude of direct and cross elasticities in the rail/coach long distance travel market.
Association for European Transport