One for competition

This is old hat. Blame too much summer travel. It is worth highlighting nonetheless.

The High Court ruled in favour of a private bus company, trying to compete with Dublin Bus. The judge said the regulator was wrong to allow the subsidized, state-owned incumbent to share a route with a private operator. The judge berated the consultant to the regulator. The judge also ruled that the regulator wrongly delayed the processing of an application for a second license.

This is good news in itself, and it sets a precedent for future cases (although the legislation is about to change).

Note that the High Court implied that, for urban bus transport, competition should be for the market rather than in the market. That is right for all but the busiest routes.

22 thoughts on “One for competition”

  1. Nice one, Richard.
    “Note that the High Court implied that, for urban bus transport, competition should be for the market rather than in the market. ”

    What would a similar implication mean if applied to the electicity/gas markets?
    It was an entrepreneur to take on the power-that-be in this transport case.

  2. @ Richard Tol

    Why is this good news in itself? You have yet to make an argument.

    Also, competition for what market? The fictional one that make econometric models look super intelligent or the real one that does not exist?

    Do you really think anyone who uses the 46A wants more choice, more competition for the route? No, they want a reliable and consistent service that meets their needs. It is an ideological assumption to think that more ‘competition’ in a fictional market will make this happen. Furthermore, will more market competition for the 125 servicing the needs of elderly people in North west Dublin lead to a better service? No, if it was left to the ‘market’ there would be no service at all.

    If we are serious about building an integrated and sustainable transport network in this city (Dublin) we need more advise from planners, geographers, policy makers etc not academic economists who deal with models rather than empirics.

  3. @ String

    If another operator can do it (46a for example) cheaper, people will use it. If you’re right and there’s no need for competition, they won’t. Not an awful lot to lose by trying that policy (well, politically it might be costly for Govt).

    Re the PSO of CIE: if we want to extend special services to certain groups that’s fine. But the money for it should come from taxes – not from the fares paid by commuters and travellers.

    Re your last paragraph: empirics doesn’t mean what you think it means. Transport systems cost a lot of money and affect output, so it may be wise to look at the economics of them.

  4. I don’t think that waste is analagous to transport if that is where this is going.

    Firstly, everybody generates waste. Not everybody uses public transport.

    Secondly, waste is generated and disposed of whether or not a good service is provided – the goal is to reduce demand rather than increase it. Public transport may not be used if a proper service is not provided – the goal is to increase demand (through good supply) rather than decrease it.

    Thirdly, transport is far more expensive to provide than waste collection processing. Therefore, greater incentives in the form or security of income are required to induce market entry.

    Fortunately, Judges usually take each case on its merits. Therefore, the question of whether a policy of competition for markets is appropriate or anti-competitive will depend on the dynamics of the market in question.

    What is interesting is that the High Court has once again stood up a state agency seeking to abuse its monopoly.

  5. I am not idealogically against privatisation, but I agree with Stringer Bell. I do not believe that competition for Dublin bus routes will make any difference to the quality of service. Privatisation, or in this case, half-hearted privatisation by stealth, is the lazy way out of fixing Dublin’s transport problems.

    I used to live in Edinburgh where the bus “market” was totally deregulated and the service was awful. Only the busiest routes were served and then by multiple companies. If catching a bus from the airport, I and everyone else, would get on the first bus that came along and did not care if the next one was 10p cheaper or was a nicer colour. The service on peripheral routes was non-existant, because, guess what, no one could make a profit on them. This would not change whether competition was in or for the market.

    By comparision, I now live in Zurich, which has a fantastic public transport system. And guess what, it is a public system. You can buy a through-ticket at any bus/tram/train stop that will get you by various modes of transport to any other stop in Switzerland and even neighbouring countries! The most remarkable thing about the system is not the number of train and tram lines it is the joined-up-thinking that integrates the whole system and makes it work for the user. That would not be possible with a privatised system – just ask the Brits.

    So, in order to solve Dublin’s, and indeed Ireland’s transport problems, take on the unions, rationalise the management of all the different bodies (and fire half of them) and invest. It is the only proven way to do it. Privatisation is just a cop-out.

  6. The case of judicial review reported by The Irish Times on 31 July 2010 and picked up by Richard Tol today (12 August 2010) does not support the claims made for it by Professor Tol.

    First, the judgment overturned the decision of the Minister for Transport to allow Dublin Bus to compete with the licensed private firm trading as Swords Express on more-or-less the same route, only in the sense that it found that the minister had failed to examine properly Dublin Bus’s notification of its intention to compete, and had allowed its competition based upon an incorrect understanding and inadequate study of the transport regulations that it was his duty to administer.

    Second, What happens next is unclear. The judge’s proposed Orders are entirely negative, quashing the minister’s actions but leaving a blank slate for the parties to write on. The matter is to be mentioned again in front of Judge McMahon on 8th October 2010.

    Third, the judgment, a judicial review, does not set any transport or competition policy precedent. The minister has had his knuckles rapped about procedural failings and also about delaying unduly in deciding an application for a second route. The judicial review does not make, alter or confirm policy, it is about procedures. In a narrow sense, it does clarify the minister’s duty, in the sense of in how he must study such an application under the regulations, and his duty not to delay.

    Fourth, the court decided nothing about competition in or for the market.

  7. @Stringer Bell. “Why is this good news in itself? You have yet to make an argument.”

    Because Mr. Tol’s “This is good news in itself” is an expression of religious belief.

  8. It appears that Mr. Justice McMahon was ruling solely on procedural points. Although it may not be as positive in terms of sensible policy and regulation as the post suggests, it does raise a number of questions. Why is the Minister simultaneously the regulator, the effective owner on behalf of the State of the dominant service provider and the policy-maker? Why should a case contesting the regulatory process require so much time and expense and require application to the second highest court in the land?

    Both theory and practice in better governed jurisdictions evidence the benefits of separating policy, regulation and ownership. Policy is enacted by the legislature and implemented by the executive arm of government; regulation is performed by an independent statutory agency that applies a quasi-judicial process; an administrative court has prompt hearings and makes timely rulings on cases contesting the validity of the regulatory procedure applied in a specific determination; and ownership is separated completely from the legislative, regulatory and executive processes.

    When these boundaries do not exist the result is dumb policy, ineffective and flawed regulation and inefficient provision of service.

  9. @Stringer Bell

    its not just about improving the service, its also about reducing the cost of providng the service. If a private company can provide the same 46A service at a lower cost then Dublin Bus then surely they should be allowed to

  10. @Stringer, Pope
    The good news is that the judge ruled that the regulator cannot randomly apply its power and support the state-owned, subsidized incumbent in crushing a new entrant.

  11. @ Paul, very good point above re. seperation of ownership, regulation and policy.
    Mr. Tol however believes the local authorities should be allowed direct waste collected by private operators to where it wants rather than the operator bring it to where it can get the best deal, while the local authority still regulate the collection of waste. If he is consitent in his logic he would argue the transport authority should decide who runs a particular route exclusively, and also be an active participant.

    RT is generally very rational and excellent on issues relating to energy and climate policy but his logic seems to struggles when he needs to defend a commissioned report.

  12. The real issue here is : Do the people of Swords have a better or worse public transport service now?

    Surely the guiding principle of the state interfering in public transport issues should be to provide the best public transport service for the public, and not pander to the owners or staff of the public transport companies.

  13. @Richard
    My appologies, It seems you have kept your council on power to direct waste issue.
    The recent ERSI report that you defended many other aspects did support it ”We would suggest that the local authority be able to: (i) contract with other waste
    collectors in order to be able to enter into take or pay contracts or for such other purposes
    to meet the overall objectives of the regional waste management plans; and (ii) that they
    have the right to direct waste. In directing waste the local authority would have to satisfy certain conditions: first, the direction relates directly to the goals of RMWPs; that the direction is least restrictive of competition; third, that the direction is proportionate; and, fourth, account would need to be taken of any prior commitment that the owner of the waste may have made, particularly an investment in infrastructure with high sunk costs.
    Who decides on this is not clear, it would seem to me to give the LAs the clear power to direct the waste as they would be the ones deciding which tenders to go for (and they are not obliged to go for the lowest or any tender).
    The local authority would be make the decision on the tender and making the local authority operator a quasifirm ”To
    avoid possible conflicts of interest the public sector operator can be turned into a quasifirm,sometimes referred to as a direct labour organisation, and compete with private sector operators”.
    Even if this was totally transparent and didn’t result in a windfall for lawyers, the local authority would still have the power to direct the waste to a monopoly disposal outlet.

    Anyway appologies if I mispresented your views, perhaps you could explain if you believe the local authorities should have the power to direct waste on you next – incinerator continued thread.

  14. @Sam
    Gorecki, Acheson and Lyons argue this way because there are economies of vertical integration — particularly, the nature of separation at source determines the options at disposal. They also argue that the right to direct waste should be exercised with caution.

    The PoolBeg incinerator should be able to compete in the disposal market without waste direction as the landfill directive comes into force. The spokesperson of the private waste collectors says they won’t send their waste there, but shareholders tend to frown upon destroying value out of spite. The national regulator is not overly concerned with the restrictions on landfill, but the DoF will help focus the mind when the fines come in.

    There is no need to direct waste to incineration.

  15. @ Andrew Whittaker

    Thanks for your clarifying post.

    One of the drawbacks of seeking an order of certiorari by way of Judicial Review is that the Court simply quashes the decision. Hence, if a State body grants me a licence with certain conditions which I consider ultra-vires the said State body, I must apply to have the entire licence quashed rather than the specific conditions.

  16. @Richard
    I don’t know why anyone would want to ban or promote vertical integration. Many different business models and commercial arrangments can work.
    Isn’t a long term contract such as that between DCC and covanta vertical integration?

    I would have no problem with the incinerator if it wasn’t given the mad contract.

    Your still avoiding the question. Should the LAs have the right to direct waste at all in your opinion?

  17. @Sam
    An LA should have the right to direct waste, but use it sparingly, and only if that LA is neither an operator nor an owner in waste collection, processing or disposal.

  18. Sometimes competition in a smallish market doesn’t yield the best welfare for the general public. Take for example in Galway city, there is the Bus Eireann city services and then in comes a competitor, the red bus. Now, neither operator achieves the required number of passengers to make a profit and as a result services are often unreliable. For workers in Knocknacarra whom cant depend on a bus coming at all, let alone late, they take the car instead to work.

    The same can be said for taxis, there is too much competition after years of deregulation. Now taxis drivers have to resort to undercutting each other(charging below the minimum fare price) to win and retain customers. In the process, they don’t earn enough to live but also force other drivers to do the same in order to ‘compete’. Its a downward spirial and no-one benefits. In the short run, customers get cheaper fares but in long run, they wont get taxis when they need a taxi.

  19. @Richard,
    Fair enough, thanks for straight answer. Would care to elaborate as to why? So long as all outlets are in compliance with there licences or permits I don’t see why we shouldn’t allow it to go to where it suite the operators best (note, epa licence conditions address issues such as quantity of BWM waste landfilled).

    A key policy that would address the conficts of interests within local authorities with regard waste mgt. is the formation of a waste licensing authority for all waste mgt. operations (this could be a wing of the EPA).
    Athough with Cork and Dunlaoghire/Rathdown pulling out of waste collections there is now only a handful of LAs that continue to provide services and I doubt these will last long.
    Dunlaoghaire/Rathdown sited the 3.5 hr working day for LA waste mgt. employees as a reason they could not compete. I expect wateford coco, Galway coco, Fingal coco, Kildare coco and Dublin City council to suspend operations within 3-5 years if not sooner

  20. For the record I advised the private operator in the case. At one level the judgment simply says the Minister erred in concluding that the Dublin Bus service was not in competition with the private service. What is perhaps more damning is the fact that the Department had been sitting on a second licence application from the private operator for two and a half years. The judge found such a delay to be unreasonable. The Department sought to justify this delay by arguing that there was a prior application for a route licence and that it dealt with applications on a first-come, first-served basis (which implies that the prior application has been with the Department for more than two and a half years). The judge found that it had failed to apply this principle when considering the Dublin Bus application to amend its route.
    As for those who argue competition would not improve matters, international experience suggests otherwise. There is an extensive literature on the benefits that have resulted from competitive tendering of bus routes in numerous cities throughout the world. As for the much maligned on-the-road competition introduced in the UK outside of London, that is also the subject of an extensive literature. The main conclusion from this literature is that, despite some serous flaws and policy mistakes, competition was superior to the previous system of public sector monopolies.

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