Competitive Tendering and Optimal Size in the Regional Bus Transportation Industry : An Example from Italy

When defining how to implement tendering procedures for the regional bus transportation industry, one of the main problems local authorities have to face is setting the area size to be assigned as franchised monopoly. This paper's aim is to analyse the topic by combining some empirical results and evidence from recent developments in the Italian regional bus industry. The empirical results show that the bus transportation sector is characterized by the presence of economies of density and scale. These results imply that the best strategy for introducing competition in the bus industry is a competitive tendering approach for an area of given dimension and not necessarily a route-by-route tendering. However, it seems that the criterion applied by local authorities in Italy is much more related to political issues - such as jurisdictional boundaries of a municipal or provincial area - than a desire to promote the exploitation of economies of scale and density