Limitation of Competition in and for the Public Transportation Market in Developing Countries

Abstract

This paper analyzes the limitations of providing public transit service because of competition in the market. Evidence from seven cities in Latin America is used to show how this service arrangement leads to inflated fares, oversupply of buses, and low-quality service. The paper then analyzes the solution advocated by the literature—competition for the market as a means to properly arrange public transit service. Next, four cities that have implemented public transit service in this competitive market are analyzed. It is found that competition for the market offers a solution but needs to be complemented by solid barriers to market entry, centralized fare collection, and the creation of a bus rapid transit (BRT) line, if demand justifies it. BRT creates a system in which competition for the market blossoms and demands for much-needed institutional capacity in operators and government agencies are met. Finally, after implementing these measures, cities should create integrated transit networks to complete the reform and institutionalize strong government service planning and supervision. The provision of actual service should remain in private hands.