A GAME THEORETICAL ANALYSIS OF COMPETITION IN DEREGULATED BUS MARKETS

The competition between buses in a deregulated market is investigated. A game theoretical approach is applied to model the strategic interactions between the operators in the bus market. The conditions for market entry and predatory behaviour are determined. The impact of deregulation of the bus market is then assessed in terms of profits and social cost to the society. A hypothetical case is constructed to test the model. Numerical results indicate that deterrence behaviour of the incumbent is generally the dominant strategy. Accommodation occurs when sunk cost is low and demand relatively high. On the contrary, blockaded entry occurs when sunk cost is high and route density is low. As deterrence behaviour leads to a lower fare and a higher service frequency, the modal share of public transport increases which consequently brings benefits to the society