a2 econs

Explain how deregulation has sought to produce competitive markets for local bus services in Britain and for European air transport services.

De-regulation is a government policy, a proccess of opening up markets and encouraging the entry of new suppliers in idustries where welfare and efficiency might be affected by dominant market power of some suppliers. The trasport industry is one of those to which de-regulation is widely applied.
In order to avoid a monopolistic situation in many important industries, which provide essential goods and services, the government has introduced de-regulation, which is aimed to break up existing statutory power of some monopolies and create competition through the process of market liberasation.
How de-regulation might affect competition in the markets for local bus services? Well, first of all, we should take into account the possibility of appearance of imperfectly competitive markets, where existing firms have genuine market power in setting prices for consumers. According to Adam Smith, the price in the perfect competition must be the lowest that can be taken. Assuming that the demand for bus tickets is more likely to be price elastic, as there are many other substitues, the setting of the correct price is the only way to increase profits for the companies. So, even without de-regulation process, the market situation can be stabiliased. However, the bus companies in the UK are not nationalised (eg they belong to the private sector), which means that this market is free to be entered. The only problem could be barriers to entry, if the market is dominated by 2-3 firms. The process of de-regulation should low these barrier in order to achieve perfect competition.

The European Air transport services market is highly competitive for a number of reasons. First of all, the ticket prices for air services are price inelastic because there are no close substitutes. Secondly, the European air services industry is likely to be an oligopolistic industry, where few dominant firms have the market power and try to take over the market. Because of this the prices tend to be high. De-regulation process is aimed to make entrance to the market easier for other firms, which will mean more fair competition, increase in services' quality and price stabilisation.