The effects of entry deregulation: evidence from interurban passenger transport

Abstract

We study the effects of entry deregulation in the Finnish interurban bus market. We observe that the number of operators on routes connecting large and medium-sized cities has grown. In less populated regions, there has not been an increase in operators, but there is also no indication of a decrease in access to transport services. We estimate the causal effect of the reform on prices using a synthetic control unit constructed from other European countries. We show that increased competition resulted in 28% lower prices in the interurban bus market. Consistent with our evidence on entry, we find that prices decreased on routes connecting large and medium-sized cities, while on routes connecting smaller municipalities, we find no significant change in prices. We also study how the reform affected the price of substitutes and find that the increased intermodal competition resulted in a 23% price decrease in the long-distance railway market. Overall, we find that the entry deregulation benefited consumers and increased total welfare.