Responses of the Kyoto City Bus Association to new entry after deregulation

Abstract

This study aimed to clarify the effects of deregulation on bus operations in Kyoto, Japan. Deregulation of bus operations in Japan was enacted in February 2002. In particular, public bus operators have reduced their business and operating costs, because they suffering from high overheads and could not easily abolish unprofitable routes. The Kyoto City Bus Association has taken one of the most progressive approaches among Japanese public bus operators. To examine the effects of deregulation, the competition between the Kyoto City Bus Association and new operators was analyzed and it was found that: 1) New entrants start with short routes and then extend them. Although, there is a "cream skimming" clause in the revised regulations, it does not function because new entrants are permitted to operate only profitable routes. 2) The Kyoto City Bus Association continued to increase new routes on a low-frequency basis, but there have been few increases in the frequency of buses on routes competing with new operators. Instead, the Kyoto City Bus Association competed with new operators by improving the convenience of its bus commuter pass. 3) The Kyoto mayor had misgivings about the competition between the Kyoto City Bus line and new operators that only operated on profitable routes. The mayor and the Kyoto Chamber of Commerce and Industry therefore intervened in the competition. As a result, one operator gave up to its routes and became a subcontractor for the Kyoto City Bus Association. Although free competition is the principle of deregulation, ad hoc intervention adjusted the excessive competition. According to the results of this study, the Kyoto bus market is contestable after deregulation.