Regulation of competition

Three forms of system structure are widely prevalent in urban passenger transport provision: monopoly; competition in the market; and competition for the market. Internationally there is a consensus towards the last of these, but the detailed form and terms of the competition vary widely. Its benefits lie in ensuring both the effectiveness of the system (through the planning and specification of the contract) and its efficiency (through market pressures).

In the case of monopolistic provision, effectiveness may sometimes be ensured (though any lack of customer focus and internal financial pressures work against this) but efficiency is unlikely in the absence of market testing. Competition in the market generally raises efficiency, but tends to reduce the effectiveness of the service offer in terms of its quality and its quantity on lower-demand routes; over-provision on popular routes also eventually raises the fares charged there.

In the case of competition in the market, operators may chose to compete on price at times of lower levels of demand – and conversely hike fares in an opportunistic manner when or where there is a shortage of transport supply. Where there is competition for the market, though, fares are set as a condition or as a consequence of the tendering process, and reviewed in accordance with contract conditions. This certainty is greatly valued by passengers.