The impact of competitive tendering on operational costs and market concentration in public transport: The Norwegian car ferry services

Abstract

The literature on how competitive tendering (CT) affects the operational costs of transportation services has been inconclusive; some concluded that it reduces operational costs, while others maintained that it increases or does not affect operational costs. We add to the literature by assessing the impact of CT on the operational costs of car ferry services in the case of Norway. Note the similarity with public transport: car ferries transport vehicles from one road point to another, like public transport does with passengers. Furthermore, we study the impact of CT on market concentration. The data comprises 53 ferry links across 8 years, yielding 424 observations. The results reveal that: (i) implementation of CT significantly lowered operational costs; and (ii) market concentration increased. These findings suggest that CT might not lead to free competition in the long run but rather to monopolistic/duopolistic tendencies, contrary to its intentions. We urge policymakers to reconsider CT carefully because its results could be counter to intentions.