Examination of Witnesses (Questions 260-279)
MR JOHN VICKERS, MR JUSTIN COOMBS AND MR GOVER JAMES
WEDNESDAY 15 MAY 2002
260. What about Bristol?
(Mr James) Much the same. Bristol City Line and Badger Line had a total monopoly at the time as National Bus Company subsidiaries. It takes a while. It has taken nearly 20 years to get to the point of having some competition.
261. In one previous meeting the Committee went to Bristol and we were very interested to see that the dominant company have actually started a cheap alternative to itself in order to keep people out, so would you think that this was really a demonstration of the superb quality of life that comes from competition?
(Mr James) It depends on the definition of "cheap". If cheap equals predatory then certainly the Competition Act would come into force.
262. The Competition Act would come into force if something was predatory?
(Mr Vickers) Yes.
263. I seem to recall some run-ins with something called Stagecoach which did not quite demonstrate that.
(Mr Vickers) Madam Chairman, you mentioned a moment ago an example where an incumbent operator had brought in a low priced service to keep rivals out.
264. Yes. They were not vulgar enough to put it in those terms.
(Mr Vickers) If that was on the lawful side of the line, that is an example of competition benefiting the consumer because of the potential rivalry the incumbent met.
265. I think you have lost me there, Mr Vickers.
(Mr Vickers) If the existing operator fears entry and says, "Unless
266. Fears competition.
(Mr Vickers) And says, "Unless I give a better deal to the travelling public there will be a rival", and if the better deal is lawful, that is good for the travelling public.
267. And if after a certain length of time the cheap company then disappears because it has seen off the opposition, that is also good for the consumer?
(Mr Vickers) If a dominant existing operator prices below cost in order to drive rivals out, that would be against competition law.
268. Does it trouble you that 25 per cent of local bus tenders have only one bidder?
(Mr Vickers) I would go back to what I said earlier which is that it is not in our power to bring about competition, to create competition.
269. I did not ask you that. I asked you does that situation trouble you?
(Mr Vickers) I think it would be more desirable if there were more bidders for tenders.
270. What about mergers? Mergers have to be very significant in terms of national market share, do they not, before they have to notify you?
(Mr Vickers) Whether the right frame of reference is national or local or indeed international depends very much on the products and services at hand. In the bus context typically the competition focus would be on local or regional issues rather than national issues because that is a relevant forum for competition.
271. How many local mergers are there which are not referred to you under the rules?
(Mr Vickers) The way the merger appraisal operates is that in this country we do not have a mandatory notification system whereby merging parties are required to notify transactions to us. Many nevertheless do. I do not have figures with me relating to bus mergers. Please forgive me.
272. Do you think they should be required to notify you even if you cannot take any action?
(Mr Vickers) On the whole I think it works well to have a system that does not have a requirement notification. This is a point not specific to buses; it is a general point. That can save unnecessary effort so I think the UK system has worked perfectly well in that regard.
(Mr James) It may be worth saying that we do read the trade press and we do see references to mergers that are happening and we can act on them. It is not a case that if they are not brought to our attention by the parties we cannot do anything.
273. How often do you act if they have not been brought to your attention?
(Mr Vickers) The broad figure, and this is right across the economy, is that last year we looked at something like 350 merger situations. Of those about 40, a bit more than 10 per cent, would have raised significant competition issues that needed an in-depth look. That is the broad order of magnitude.
274. Could you define which of those were in the bus industry?
(Mr Vickers) That is something we could do for you.
275. You would be prepared to give us a note on that?
(Mr Vickers) Certainly.
(Mr James) We have only the numbers that are in the memorandum but that is just numbers.
276. That is just numbers. I am asking you for a little bit more.
(Mr Vickers) Of course.
277. You will not allow two companies to agree service frequencies along one route, yet you are likely to agree to the merger of those two companies, creating a monopoly. Do you see any inconsistency in that?
(Mr Vickers) Whether or not a merger such as that would be cleared does depend on the surrounding competitive circumstances. There is no automatic answer one way or the other in that regard. For the reasons I gave earlier we could not responsibly put within the block exemption automatic clearance for agreeing time limits between operators in part because agreeing timings would be people that would otherwise be competing agreeing how many buses each would run in the hour and that is not something that could responsibly be allowed under competition law.
(Mr James) The threshold for the Office to look at a merger is regulated in any case at gross assets of £70 million of the company being acquired or a combined market share of at least 25 per cent. It may very well be that a number of mergers simply do not qualify for reference.
278. Cannot that mean that a monopoly position could then exist in a locality affecting the local traveller and you are unable to act?
(Mr Vickers) Gover mentioned the assets test, the £70 million. It is that or a merger giving rise to a share of supply greater than 25 per cent. In an example where there was a merger to a monopoly in the local area, that would clearly cross the latter threshold and therefore would be referable to the Competition Commission.
(Mr James) There of course we are now looking at public transport markets or possibly bus markets, and if we included the private car in the market definition then it is unlikely that any bus merger would ever qualify for reference to the Commission.
(Mr Vickers) So we tend not to.
279. Are you satisfied that there is competition in local areas and that mergers of transport operators are not at the expense of the local community?
(Mr Vickers) In some situations there is competition; in other situations there is not. Where a merger threatens substantially to lessen competition, then we would be likely to advise that that be referred to the Competition Commission. It very much depends on the circumstances but where there is a threat to competition that is what would happen.