CC finds McGill’s perceives First Glasgow to be a credible threat and this would be likely to constrain the operator from substantially worsening its offer post-acquisition
The Competition Commission (CC) has provisionally cleared McGill’s completed acquisition of Arriva Scotland West (ASW) after carrying out a four-month review.
McGill’s and ASW had previously run competing services in East Renfrewshire, Renfrewshire and the west of Glasgow, including Paisley.
The commission provisionally found that, without the takeover deal, both companies would have continued to provide services in Renfrewshire, but said: “although they were each other’s closest rivals, in future competition between them would have reduced.”
It also provisionally concluded the threat of entry into the area by large bus operators would provide sufficient incentive for McGill’s to avoid reducing service frequency or increasing fares.
Alasdair Smith, Chairman of the McGill’s/Arriva Inquiry Group and Commission Deputy Chairman, said: “We think McGill’s will have a strong incentive to maintain service quality and avoid fare increases so as not to risk providing the opportunity for a large operator like FirstGroup or Stagecoach to enter the area.
“Such a threat would be credible given the resources, location and normal strategy of these companies and as a relatively small operator, McGill’s would want to avoid getting drawn into a potentially punishing battle against a bigger rival.”
The Office of Fair Trading had referred the case for inquiry in April and the CC is expected to publish its final report by early October.
Bosses at McGill’s last week issued a statement saying they were ‘pleased’ at the latest developments, welcoming the fact Mr Smith said the takeover ‘has not resulted and is not expected to result in the substantial lessening of competition.’
A spokesperson for the McGill’s board of directors said: “Our number one priority has always been, and will continue to be, to provide a first-class, reliable and cost-effective service for our passengers.”
The CC’s provisional conclusions were as follows:
“As a smaller bus operator, McGill’s perceives First Glasgow to be a credible threat and this would be likely to constrain the operator from substantially worsening its offer post-acquisition (relative to the counterfactual). Given the low barriers to entry and expansion, its extensive network, its presence on some flows already in the Renfrewshire area and, in particular, its spare capacity nearby, we had no doubt First Glasgow could enter six new flows in a timely way should a profitable opportunity arise. Given its financial resources, we thought First Glasgow would be willing to take on McGill’s and be prepared to suffer some short-term losses should McGill’s react to its entry. The past examples of First Glasgow’s entry and expansion suggest a threat of entry is credible. We also thought the incentive for one of the larger operators to enter against McGill’s was greater than it would have been against ASW. We therefore thought it likely that McGill’s would perceive First Glasgow as being prepared to enter flows on which it was not currently present. The presence of Stagecoach would, in our view, add to the likelihood that McGill’s behaviour would be constrained post-acquisition.
“We therefore provisionally concluded there was no substantial loss of actual competition as a result of the acquisition.
“We also provisionally concluded there was no loss of potential competition from the acquisition either within or outside the Renfrewshire area.
“We provisionally concluded there was no substantial lessening of competition as a result of the acquisition of ASW by McGill’s.”