The multi-franchise system in public utility bus operations: Effects on market efficiency

• Main Author: Real, John Roy Robert G., Jr.
• Format: text
• Language: English
• Published: Animo Repository 2010
• Subjects: Transportation—Law and legislation > Philippines; Franchises (Retail trade)—Law and legislation > Philippines; Transportation
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/7124
• Institution: De La Salle University

The Philippine Constitution espouses the principle of competition as a form of market structure. Competition is characterized by a large number of firms competing in the market place, so that no one company or group of companies can influence market price. According to the Philippine Supreme Court, this constitutional policy of competition is the reason for the prohibition against restraint of trade, the reason for the interdiction of unfair competition, and the reason for the prohibition of unmitigated monopolies. The policy of competition is also adhered to when the government grants authorization to operate public utility vehicles. In fact, the Constitution itself directs that no franchise or certificate of public convenience shall be exclusive in character. Thus, as a mechanism to implement the policy, the government, through the Land Transportation Franchising and Regulatory Board (LTFRB) adopts the multi-franchise system, where numerous operators can be given permits for the same routes. The primary objective of this study is to determine the effects of the multi-franchise system on the market efficiency of the Public Utility Bus (PUB) operations. It focused on the effects of the system on: (1) the supply of PUB services; and (2) the resulting transport externalities, or the benefits or costs generated as an unintended by-product of an economic activity. Since the study involves a system being employed by an administrative agency, the researcher also evaluated the legal mandate of the LTFRB. The researcher concludes that the multi-franchise system, inter alia, is a major contributor to the increase in supply (and in turn, to the over-supply) of PUB services. This is because the system, as the implementing mechanism of the government’s policy of competition, requires the LTFRB to grant franchises to multiple PUB operators in order to have a “large number of firms” competing for the market. Unfortunately, this is regardless of whether the current supply already meets the demand for such services. The researcher also concludes that the multi-franchise system, inter alia, contributes to negative transport externalities – a source of inefficiency in the market. Such negative externalities include: Traffic Congestion; Disorderly Operations and Unfair Practices; Accidents; and Air Pollution and Environmental Problems. According to Mega Manila Public Transport Study (MMPTS), the contributing transport externalities resulted from the aggressive behavior of operators and drivers to increase occupancy rate. This aggressive behavior was seen to be a product of the existing cut-throat competition in PUB services. Cut-throat competition resulted from excess in supply and shortage of demand for PUB service. As previously discussed, it was seen that the multi-franchise system is a main contributor in the excess of supply for PUB service. In other words, the over-supply created cut-throat competition, pushing operators to engage in aggressive behavior, leading to the production of negative transport externalities. As a result, it is highly recommended for the LTFRB to rationalize the PUB operations through the implementation of a non-exclusive, single franchising system. This system will address: (1) the excess supply of PUB services by limiting the grant of franchise to a single operator per route or per area; and (2) the contributing negative transport externalities by eliminating cut-throat competition. The main feature of this proposed system is the granting of franchise to a single operator per route or per area. To be qualified, the operator: (1) must have the capability to satisfy the demand for PUB service; (2) must have the resources to sustain such operations for the duration of the franchise; (3) must propose and implement a detailed plan to make such service organized, efficient, reliable, safe, and environment-friendly. The author acknowledges that there may be legal issues in implementing the proposed system, considering that the Constitution espouses the policy of competition. The author submits that the new system will not produce a complete shift from a policy of competition to a policy of monopoly. Badges of competition are still present in the proposal. As will be discussed, the new system will have an effect of shifting competition from the streets to the bidding table, similar to those implemented in other public utilities (e.g. rail-service and the arrastre service). The author further submits that the new system will not violate the non-exclusivity clause under the Constitution. The franchise to be given is revocable, for a limited time, and non-exclusive. Additional franchise to another operator may be granted as a contingency measure, if public interest so requires and as determined by the LTFRB or through law. It is believed that the success of this proposal and the eventual elimination of cut-throat competition in roads will in turn contribute in paving the way for a more organized, efficient, safe, fast, and reliable public transport system in Metro Manila. The author is confident that this proposed system will contribute and compliment in the eventual implementation of public transport rationalization, interconnection, and integration. With a single operator in a specific route or area, the time will soon come where Metro Manila will have working PUB stops, definite PUB arrival and departure times, a more comprehensive public transport travel guides and information, and non-aggressive PUB drivers.