Local bus services are given an estimated £1.2bn in public subsidy
The Office of Fair Trading (OFT) has referred the UK's local bus services to the Competition Commission over concerns about pricing.
The OFT said it had found evidence that limited competition between operators tended to result in higher prices and lower quality for passengers.
Bus services in London and Northern Ireland will be excluded from the Competition Commission's inquiry.
Bus firms said there was a considerable amount of competition in the industry.
Value for money
The OFT said it was concerned about single operators dominating areas.
"This is certainly not about a return to 'bus wars' or unmanaged 'head to head' competition on every route, but we do think large bus operators should face a healthy level of competitive constraints," said Heather Clayton, senior director at the OFT.
"Given the size and importance of this industry, with at least £1.2bn coming from the public purse every year, the OFT believes that it is appropriate for the Competition Commission to investigate how, in its various forms, competition can be harnessed to deliver what passengers want and the best value for money for the taxpayer."
The OFT initially proposed referring the local bus sector to the Competition Commission in August last year and a full inquiry will now take place.
Competition from the car
The OFT said that a quarter of all tenders issued by local authorities to provide new bus services receive only one bid.
It added that it had received complaints about the "predatory behaviour" of incumbent firms, designed to exclude new players from entering the market.
The Confederation of Passenger Transport UK (CPT), which represents the bus industry, said in a statement: "Bus companies operate in a highly competitive market and it's always in our interests to keep prices competitive to get passengers out of their cars and onto our services.
"There's a considerable amount of competition between different operators, but the biggest competitor is the car. It's curious that the OFT has excluded the car (i.e. congestion issues) from its deliberations."