The Office of Fair Trading said that in each case the three bidders - FirstGroup, National Express and Stagecoach - had bus or coach services which overlapped with rail services in the Greater Western region.
The franchise, which is due to be let from next April for a 10-year period, covers InterCity rail services from Paddington station in London to the West Country and parts of Wales, and local services in parts of the South and South-west such as trains between Gatwick and Reading. The OFT said that in addition to potentially removing competition between rail and buses or coaches, both Stagecoach and National Express also operated some competing train services within the Greater Western region.
"For many routes and journeys in the Greater Western region, passengers can choose between a rail service on the one hand and either a First or Stagecoach bus service, or a National Express coach service on the other," the OFT said.
"On many of these overlaps there are no other public transport alternatives - which means that whatever bus or coach versus rail competition exists would be lost for that journey."
The Greater Western route is one of several so-called "super franchises" being created by the Government. It groups together the Great Western and Great Western Link routes, both currently operated by FirstGroup, and Wessex Trains.
The Competition Commission investigation will last six months, which means that the franchise will have been awarded to one of the bidders before it produces its report.
This is the third time the OFT has referred a rail franchise bid to the Competition Commission. FirstGroup's bid for ScotRail was referred and so was National Express's bid for Greater Anglia, but only after it had been operating the franchise for several months. FirstGroup's bid for the East Coast Mainline was also referred by the OFT. National Express's takeover of Greater Anglia was subsequently cleared as was FirstGroup's bid for ScotRail. The investigation into its bid for the East Coast Mainline lapsed after the franchise was awarded to the incumbent operator GNER.
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