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public monopoly
Public monopoly with management contract
Area contract (gross cost)
Area contract (net cost)
Route contract (gross cost)
Route contract (net cost)
Unregulated entry with quality control
Unregulated entry without quality control
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A monopoly may be publicly or privately owned. In almost all cases, instituting a public monopoly structure is inadvisable. The experience of developing countries around the world shows that public monopolies fail to deliver a sustainable public transport service.

There are several inherent disadvantages of a public monopoly system. Poor service because of a lack of competition is a typical example. Another is the inability of public monopolies to generate sufficient funds to pay for bus maintenance and investment in infrastructure. A privately owned monopoly, unless effectively regulated, may also have serious disadvantages. A common problem is exploitation of the users, by offering inadequate or unsatisfactory services at excessive fares.

As with the public monopoly, there is a tendency for staffing levels, wages and other costs to rise at a faster rate than they would have done under a competitive regime. In addition, depending on the financial incentive program and the extent of the government's powers, there may be a tendency for service quality to be poor, with the service catering only to those with no choice of transport mode.

A private monopoly is, in effect, an area contract awarded to a private sector operator. The area may cover an entire urban area or a substantial part of it. See the sections dealing with Area Contract – Net Cost and Area Contract – Gross Cost. If all bus services within a city or urban area are provided by one publicly-owned company it’s a public monopoly.

Major disadvantages of a public monopoly

  • Absence of competition often results in poor service.
  • Conforming to government guidelines for staff terms and conditions often results in over-staffing with high salary costs.
  • As a government agency the operator cannot voice opposition to political edicts even where these are detrimental to bus operations.
  • Public monopoly operators are often unable to secure adequate fare increases, or to secure funds for investment in new buses.
  • There is a tendency for the operator to become more powerful than the regulatory authority.

A public monopoly should only be considered under limited circumstances

  • No private companies are interested in investing in the bus industry.
  • An exclusive franchise or operating right to a route or area cannot be enforced.
  • Previous attempts to improve the services provided by private sector operators have failed, for reasons beyond the authority’s control. For example, because of criminal activities or failure by government to fulfill its obligations.

System design for a public monopoly must take into account:
Legal aspects
Institutional requirements
Financial aspects
Vehicle types
Infrastructure requirements
Making the transition

There may be private sector involvement in a public monopoly by engaging private sector managers to manage the undertaking through a formal management contract.



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