Buses and bus fares in Brighton and Hove and around the country are to be investigated by a national watchdog.
The Office of Fair Trading has asked the Competition Commission to carry out a full investigation.
The OFT is concerned about areas like Brighton and Hove where a single company dominates a local market.
It said that it had “found evidence that limited competition between operators tended to result in higher prices and lower quality for passengers”.
Only bus services in London and Northern Ireland will be excluded from the Competition Commission inquiry.
Heather Clayton, senior director at the OFT, said: “This is certainly not about a return to ‘bus wars’ or unmanaged ‘head to head’ competition on every route, but we do think large bus operators should face a healthy level of competitive constraints.
“Given the size and importance of this industry, with at least £1.2bn coming from the public purse every year, the OFT believes that it is appropriate for the Competition Commission to investigate how, in its various forms, competition can be harnessed to deliver what passengers want and the best value for money for the taxpayer.”
The local bus sector was initially referred to the Competition Commission in August last year and a full inquiry will now take place.
The OFT said that a quarter of all tenders issued by local authorities to provide new bus services receive only one bid.
It added that it had received complaints about the “predatory behaviour” of incumbent firms, designed to exclude new players from entering the market.
There is no suggestion that Brighton and Hove Buses or its owner Go Ahead is implicated in these practices.
In Brighton and Hove the company faces limited competition from Stagecoach and The Big Lemon.
The OFT’s main findings were:
• Most local routes are operated by a small number of large bus companies
• Fares were higher where operators with a strong market position are not challenged by a large, well-resourced rival
• Many complaints alleged “predatory behaviour” by incumbent firms designed to eliminate competition from new entrants
• There were few bids for taxpayer-subsidised contracts in many areas, with just one bidder for a quarter of tenders.
The OFT said it had received some 30 complaints nationwide of behaviour designed to exclude rivals from the market since March 2000 – about one every four months.
Predatory tactics can include upping the frequency of buses to “crowd out” rivals or timing buses to run just in front and sometimes also just behind a rival’s buses.
It also said that bus groups could hit competition by cutting fares significantly or running buses for free, or by refusing to take part in multi-operator ticketing schemes to limit the scope for entry or expansion by smaller operators.
OFT chief executive John Fingleton said that the investigation had unearthed a range of evidence which suggested the sector was “often not working as well as it should”.
John Major, of the Confederation of Passenger Transport UK, which represents the bus industry, said when the issue was first raised last year: “Bus companies operate in highly competitive local markets and it is always in our interests to keep prices competitive to attract passengers out of their cars and on to our services.
“There is a great deal of competition between bus operators, large and small, although the biggest competitor for the bus industry is the car.”
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