By Daniel Trotta

NEW YORK, Dec 11 (Reuters) - Two companies are driving up prices for tourists in New York City by running an illegal monopoly in the $100 million market for hop-on, hop-off bus tours, state and federal antitrust authorities said in a lawsuit filed on Tuesday.

Twin America LLC, a joint venture of former rivals Coach USA Inc and City Sights LLC, violates competition laws and should be dissolved, according to the suit filed in Manhattan federal court.

Twin America vowed to contest the suit, saying the government ignored improved service to customers since the 2009 joint venture.

Coach USA and City Sights both run open-topped, double-decker buses that take tourists to more than 40 stops such as Times Square, the Empire State Building and the World Trade Center site.

They were once fierce competitors, with Coach long enjoying a dominant position, but City Sights started gaining market share in part by offering discounts, the lawsuit said.

Coach grew tired of the relentless competition and initiated discussions with City Sights in 2008 that resulted in a joint venture in March 2009, according to the lawsuit. The deal evenly split management rights and divided profits 60-40 in Coach's favor, the suit said.

The joint venture enabled the companies to raise prices 10 percent -- from $49 to $54 -- without fear of losing customers, the suit said.

"Forming a monopoly that overcharges consumers is illegal and will not be tolerated," New York State Attorney General Eric Schneiderman said in a statement. "The iconic double-decker Gray Line and City Sights buses are seen all over New York City but few people know they are a monopoly that has led to higher prices and less competition."

The lawsuit asks the court to order Twin America to divest certain assets or dissolve the joint venture.

"We are very disappointed in the decision and allegations made by the Department of Justice and the New York Attorney General," George Lence, a spokesman for Twin America, said in a statement. "These actions do not reflect the improvements, increased services and greater value our joint venture has delivered to customers over the past three years, despite a very challenging economy."

An estimated 2 million of New York City's 50 million annual visitors take the bus tours, generating $100 million in revenue, Schneiderman's office said. 

(Additional reporting by David Ingram)

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