The CMA (Competition and Markets Authority) have been investigating the merger situation of Arriva Rail North and Northern rail franchise to identify whether competition may be affected.
It’s always a danger when competition could be lessened through companies merging together and / or acquisition situations, which is why the CMA often gets involved in these scenarios.
The CMA has completed their initial findings and has identified some areas of the market which may face a substantial lessening of competition.
Provisional CMA findings
The provisional findings indicate that there may be a substantial lessening of competition in the market affecting overlapping bus and / or rail flows in the following areas:
- Leeds to Sheffield;
- Wakefield to Sheffield;
- Chester to Manchester;
- Chester to Stockport;
- X4 in the Redcar area;
- routes 83 and 84 in the Huddersfield area;
- routes X14, X15 and X18 in the Ashington area; and
- route 12 in the Darlington area.
This means that the CMA believes the merger may result in a substantial adverse affect on competition in these areas / routes.
Why is this bad?
Good, healthy competition means organisations competing against each other have to manage prices to gain a competitive edge over each other. Managing prices usually means reducing prices, which is good for the consumer.
You don’t just have to cut the price and reduce profit margins to do this though – it’s wise for organisations to work as efficiently as possible to reduce costs, which means reducing prices doesn’t hit their profit margins, and can be achieved through better efficiency. At the same time, new innovation can fuel efficiency, which can then lead to better ways of being efficient and keeping prices down.
When competition is reduced, the incentive for businesses to have to compete harder can be reduced. Less competition often means less pressure to compete, which can then lead to higher prices with less of a need to drive innovation and be efficient to keep prices down.
In this case, the CMA feel that competition could be significantly lessened, which in a country where travel fares are already very high, is a real worry for the consumer.
Off the back of the CMA investigation, undertakings may need to be made, or parts of businesses may need to be sold off or moved elsewhere to help stop any reduction in competition.