Scandinavian Working Papers in Economics

Working papers in Transport Economics,
CTS - Centre for Transport Studies Stockholm (KTH and VTI)

No 2017:14: The distance factor in Swedish bus contracts: how far are operators willing to go?

Andreas Vigren ()
Additional contact information
Andreas Vigren: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

Abstract: One of the factors differentiating operators the most in bus services is, arguably, the respective distances from their workplaces to the area of a procured contract. More dead running kilometers implies higher costs, and the same should affect operators’ probability to participate in tenders. As previous studies have discussed, this is a relevant competitive factor, but the transport literature lacks studies aiming to assess the size of this distance factor. This paper examines what impact operators’ distance to tendered bus contracts has on their probability to participate in the tender, and how this probability differs across operator types. To address this, an econometric analysis was undertaken using probit regressions with data on tendered Swedish bus contracts over the period 2007–2015 along with operator workplace data. The results show that operators’ distance from a contract has a significantly negative effect on their probability of placing a bid for the contract. While being located near the contract gives, on average, an over 90 percent probability of participating, being 10 kilometers away results in a 30 percent probability. The rival’s distance to the contract also has an effect, but only to a limited extent. Large operators are found to be less affected by their distance to a contract, and they are also more inclined to bid if the procuring authority offers a depot to use.

Keywords: Competitive tendering; Distance; Dead running kilometers; Bus; Entry; Competition; Participation

JEL-codes: C35; H57; L11; L16; L91

30 pages, November 14, 2017

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