Is the mere threat enough? An empirical analysis about competitive tendering as a threat and cost efficiency in public bus transportation

Abstract

In public transport governance, competitive tendering has often demonstrated good results in ensuring cost efficiency. To achieve other goals, such as a high service quality, ridership growth, or building trusting partnerships between public transport operators and public transport authorities (PTAs), however, more cooperative governance instruments may be suitable. One proposition is to use competitive tendering only occasionally but keep the threat to apply it whenever necessary; thereby, it is assumed that operators behave as if there were competition for the market. In addition, PTAs can overcome information asymmetries and establish effective benchmarking schemes. This paper empirically assesses this indirect effects of (the threat of) competition on cost efficiency using stochastic cost frontier analysis with a panel data set containing more than 850 concessionary regional bus lines in Switzerland from 2008 to 2017. Results show that inefficiency is indeed lower for bus lines where any indirect effect of competitive tendering can be assumed. Although preliminary, these findings indicate that a more flexible use of competitive tendering and its combination with other, rather cooperative governance instruments such as negotiations could support PTAs pursuing cost efficiency as well as additional goals and thereby maximise overall welfare.