31.3.13

RETHINKING THOSE DEMSETZ AUCTIONS.

Last fall, a kerfuffle over Passenger Rail operating rights broke out when Britain's Department for Transport awarded the franchise to operate the fast trains on the West Coast Main Line to First Group, stripping longtime operator Virgin Trains of what may have been its signature service, those pale shadows of the New Haven Comet called Voyagers notwithstanding.  A tussle of prodigious intensity erupted, during which franchise bidding for Passenger Rail franchises was suspended.

Railway reports franchise bidding will resume.
The Government has restarted its rail franchising programme by inviting bids for the East Coast franchise and other franchises in a timetable spanning the next eight years.

The Government has restarted its rail franchising programme by inviting bids for the East Coast franchise and other franchises in a timetable spanning the next eight years.

In addition, the DfT and Virgin Trains have concluded negotiations over the temporary 23 month extension to the West Coast franchise until late 2014 following the cancelled competition at the end of last year. The new agreement means Virgin will continue to operate the West Coast route until April 2017. It will mean that if the franchise runs to term, Virgin will have had a 20-year tenure on the line.
The article expresses a hope that the resulting extended durations for franchises will "bring more stability and also franchisees to make a greater investment."  So much for using franchise bids to introduce a form of contestability into what might be properly viewed as quasi-monopolistic or naturally monopolistic markets.  The more entrenched a Virgin Trains or a Grand Central is as a train operator, the more sunk its investment becomes, and the more difficult might be (the economic theory on this point is not settled) the ability of a competing bidder, whether it is First Group or The Milwaukee Road, to put together a successful competing bid.

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