Effects of regulation changes in seoul bus system: private bus operation under non‐competitive fixed price contract

Abstract

AbstractOne of crucial measures introduced under Seoul Public Transport Reforms 2004 was the regulatory framework change of intra‐urban bus from the poorly regulated private operations with operating subsidy, towards the highly regulated one via fixed price contracts. The focus of this paper is placed on (1) addressing the challenges newly faced after Seoul Bus Reform 2004, and (2) proposing some strategies in order to ensure better bus operation overall the reforms was a success in many aspects, resulting in the increase of patronage of urban transit, the dramatic drop of bus accidents, and introducing exclusive median lanes. Unfortunately, the previously small, family‐owned, inefficient bus companies were transferred to monopoly franchises under the reforms, thus institutionalizing a non‐competitive supply situation. The exclusive operating right‐of‐way is still protected as a judicial precedent set by the Korean Supreme Court. The current non‐competitive bus contracts such as a sole‐source negotiation procurement must be modified into competitive tendering in the long run, and the major obstacles to this strategy and the detailed scheme are reviewed. Further, the short‐term strategies was proposed including (a) the development of more sophisticated standard cost model incorporating a route structure and/or the patronage change; (b) the introduction of yardstick regulation; and (c) extended incentives and penalties. Copyright © 2010 John Wiley & Sons, Ltd.