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Acquisition, efficiency and scale economies: An analysis of the British bus industry

Cowie, Jonathan

Authors



Abstract

The British Bus industry has undergone considerable transformation since privatization. Five major operators have emerged to dominate the market, a position almost exclusively attained through acquisition. This paper reviews the economies of scale argument commonly cited for this change and gives an overview of the acquisition process. It questions whether this argument gives a complete explanation for this industry development. For 58 individual companies, the level of technical efficiency attributable to firms operating at or near the optimum level of output is examined over 5 years to determine if mergers in practice have resulted in scale economies. Technical efficiency is estimated using data envelopment analysis, under assumptions of constant and variable returns to scale. Efficiency scores are then regressed on a time trend and a merger dummy to test whether acquired firms' efficiency has significantly improved above the average. It was found that over the period, efficiency had improved. This improvement, however, cannot be wholly attributed to the achievement of economies of scale. More specifically, there has been an improvement in the internal efficiency of acquired firms and some scale economies within group companies, the latter of which may have resulted from the eradication of competition.

Citation

Cowie, J. (2002). Acquisition, efficiency and scale economies: An analysis of the British bus industry. Transport Reviews, 22(2), 147-157. https://doi.org/10.1080/014416400110076267

Journal Article Type Article
Online Publication Date Nov 26, 2010
Publication Date 2002
Deposit Date Feb 27, 2008
Print ISSN 0144-1647
Electronic ISSN 1464-5327
Publisher Routledge
Peer Reviewed Peer Reviewed
Volume 22
Issue 2
Pages 147-157
DOI https://doi.org/10.1080/014416400110076267
Keywords Bus companies; Private sector; Amalgamations; Economies of scale; Technical efficiency gains; Management efficiency gains;
Public URL http://researchrepository.napier.ac.uk/id/eprint/1892
Publisher URL http://dx.doi.org/10.1080/014416400110076267




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