TOO MANY DEMSETZ AUCTIONS?

In Britain, Train Operating Companies bid for the right to operate trains on rights-of-way still owned by the government.  The idea may have come from commercial pilot R. Jay, who wrote an essay in the March 1967 Trains, suggesting that Uncle Sam own the railroad tracks and lease space to the railroads.  At the time, the future did not look at all good for United States railroads.  Penn Central and Burlington Northern were still tied up in litigation, and Union Pacific's bid for Rock Island was unraveling.  The Powder River Basin, unit coal trains, and doublestacks were still in the future.

The idea thus was overtaken by events in the United States, but became policy in Britain.  The Conservative winding up of ownership of the Commanding Heights had many of the elements of a libertarian fantasy, including the dis-integration of power companies into generating and transmission enterprises, and the sale of the tracks to a private owner who would sell paths for trains on the rail network.  The private owner of tracks failed to make a go of it, for reasons too complex to evaluate here, but individual train operating companies, sometimes with subsidy from regional Passenger Transport Authorities, have to bid for the right to operate train services.

Richard Branson's Virgin Group have been operating the London Midland and Scottish West Coast Main Line between London and Glasgow via Carlisle, where the Pendolino trains have proven worthy heirs to the Duchesses, as well as a number of other cross-country services, too many of which make do with the less impressive Voyagers.

From time to time, though, the franchises get put up for bid, which involves adjustment costs, and in the most recent round, First Group (which also operates the school buses in DeKalb) outbid Virgin Trains for the West Coast franchise.  The business editor of London's Daily Telegraph characterized both companies' bids as "absurdly optimistic".

[Mr Branson has] done his best to recreate the golden age of steam ever since it got out that his days as operator of the West Coast Main Line rail franchise were looking decidedly numbered. But, any day now, we’ll know whether FirstGroup really has bid as much as £7bn for the joys of running the London to Scotland line for the next 14 years – outbidding Virgin Rail by up to £1bn.

But First propose additional seats -- somebody has to buy that fourth car for the Zephyr seventh car for the Acela extra middle cars for Pendolinos and Voyagers.  Or perhaps build a long-distance Adelante set for the diesel routes.  They propose new direct services between London and Telford (hello, Guildex!), Shrewsbury (is that via the old GWR out of Swindon, why not just extend the Telford service by way of Birmingham and Wolverhampton?), Blackpool (used to be Rebuilt Scots and Black Fives lifting excursionists out of Euston) and Bolton.

Mr Branson is likely to take an appeal.

We also did not want to risk letting everybody down with almost certain bankruptcy at some time during the franchise as happened to GNER and National Express who overbid on the East Coast mainline. Sadly the Government has chosen to take that risk with First Group and we only hope they will continue to drive dramatic improvements on this line for years to come without letting everybody down.

We won the franchise in 1997 with an agenda to change radically the way people viewed and used the train. At the time the track was run-down, staff demoralised, the service riddled with delays and reliant on heavy subsidies. We set hugely challenging targets to dramatically speed up journey times with modern tilting trains, increase the frequency of the service, improve the on-board experience; as well as double passenger numbers and return the line to profit.

We were told it was "Mission Impossible" and our plans were laughed at by critics. However 15 years later, despite continued problems with the track, we have achieved our targets. Passenger numbers have more than doubled to over 30 million, the fastest growth in the UK and world leading. We have the highest customer satisfaction of any long distance franchise operator and dominate the air/rail market between London and Manchester. It has been a remarkable achievement by an outstanding team who have successfully delivered on our promises.

Apparently the government have contingency plans against the event of First failing to fulfill the contract. Mr Branson suggests Virgin will no longer be bidding for Passenger Rail operating franchises.