Competitive tendering and cross-shareholding in public passenger transport

Competitive tendering is a widespread procurement strategy for increasing efficiency in the passenger transport industry. Motivated by the structural changes following the increased use of competitive tendering observed in the Norwegian local bus industry, this paper uses first-price single-bid auction theory to demonstrate that rational firms can respond strategically with cross-ownership when exposed to the uncertainty entailed to competitive tendering. This could raise the equilibrium bid implying that the subsidy reduction rationale for introducing competitive tendering is partly invalidated. Transport authorities should be aware of such possible structural changes when considering further implementation of competitive tendering.