UK Buss Market - The Competitive Environment Essay

UK Buss Market - The Competitive Environment - Essay Example Competition plays a very important role in the growth of a market and economy. Increasing competition is the most effective way of enhancing the welfare of the consumers. Competition breeds entrepreneurship, creativity, innovation and increases the efficiencies of the firms. It also results in low prices along with better services and products for the consumers. But perfect competition is very difficult to achieve as firms in a market continuously try to beat the competition and increase barriers to entry. Firms at time even come up with strategies and partner with rivals to keep new firms from entering the market. UK Bus Market – Background It has been 25 years since the UK Bus market was deregulated but still only a handful of firms account for the majority of the market. The competition in the market has stagnated and the existing big firms know that they have very little to worry with respect to new firms entering the market or existing firms challenging their market dominance. As a result of this there is no drive among the firms to innovate or improve the services. Pricing is also on the higher end negatively affecting the consumers. Also it has been found that the existing firms have avoided competing with each other with the intention to protect their territories. Firms have used short-term measures to ensure rival markets quit the market (BBC, 2011). There are around 1,245 bus companies in UK but 70% the market is accounted by Stagecoach, Go-Ahead, FirstGroup, Arriva and National Express. Competition Commission has proposed numerous measures to increase the competition in the market (BBC, 2011).... duct-Performance (S-C-P) model is an effective tool developed by economists to understand the relationship between relationship between the market performance, conduct and structure (Faulkner & Campbell, 2006). Even though the casual view is that the structure of a market determines conduct of the firms in the market and in turn the performance of the both the firms and the markets it is not always reliable. It is possible that conduct of firms in a market can affect the market structure, for example collusive prising agreements affects the structure of the market. It is also true that the performance of firms can affect the structure of the market, for example best performing firms in a non-homogenous market exert great market domination. Therefore, in the current context, the structure, conduct and performance will be analysed individually and then summarised collectively in the next section. Structure of UK Bus Market The most important characteristic of market structure is the nu mber of firms in the market. Even though there are around 1,245 firms in the market, the market is dominated by five firms whose collective market share is about 70% (BBC, 2011). The UK bus market is an oligopoly as it is controlled by a 5 major firms (Banister, 2002). The five-firm concentration ratio of the UK bus market is 66.7 Entry costs into the market are high as it demands huge capital investments to set up the service and have it running. Also the sunk costs of the market are high which has made it less contestable. The service offered here is non-homogenous and the firms have the opportunity to differentiate themselves from the competitors through different marketing and branding strategies. Economies of scale is absent in the market. The Bus market is greatly vertically