FTC Staff Comment Before the California Public Utilities Commission In the Matter of the Regulation of General Freight Transportation by Truck

,. 	V880063
BEFORE 	THE 	PUBLIC 	UTILITIES 	COMMISSION
OF THE 	STATE 	OF 	CALIFORNIA
COMMISSION AUTHORIZED
In 	the 	Matter 	of 	the
Regulation 	of 	General 	Freight
Transportation 	by 	Truck.
I.88-08-046
TESTIMONY 	OF 	DOCTOR JAMES 	A. 	LANGENFELD
OF 	THE 	FEDERAL TRADE 	COMMISSION
Filed 	by:
The 	Staff 	of 	the 	Federal 	Trade
Commission
San 	Francisco 	Regional 	Office
By:
Ronald W. 	Phelon
Economist
October 	27, 	1988

I.88-08-046
Comes 	now 	the 	Staff 	of 	the 	Federal 	Trade 	Commission 	and
respectfully 	submits 	the 	qualifications 	and 	testimony 	of 	Doctor
James 	A. 	Langenfeld 	in 	Order 	Instituting 	Investigation 	I.-88-08-
046.
I
The 	qualifications 	of 	Dr. 	Langenfeld 	are 	attached 	as 	EXHIBIT
A. 	The 	testimony 	to 	be 	given 	by 	Dr. 	Langenfeld 	is 	attached 	as
EXHIBIT 	B. 	A copy 	of 	a 	Bureau 	of 	Economics 	Staff 	Report,
Deregulation 	in 	the 	Trucking 	Industry, 	dated 	May 	1988, 	by 	Diane
w. 	Owen, 	is 	attached 	as 	EXHIBIT 	C. 	Dr. 	Langenfeld 	will 	submit
this 	study 	as 	a 	part 	of 	his 	testimony.
II
Questions 	regarding 	our 	sUbmission, 	or 	any 	other 	related
matter, 	should be 	addressed 	to:
Ronald W. 	Phelon
Federal 	Trade 	Commission
901 	Market 	Street, 	suite 	570
San 	Francisco, 	CA 	94103
DATED: 	October 	27, 	1988
Respectfully 	submitted,

.'
1.88-08-046
CERTIFICATE OF SERVICE
I 	certify 	that 	I 	have 	by mail 	this 	day 	served 	true 	copies 	of
the 	qualifications 	and 	testimony 	of 	Doctor James 	Langenfeld, 	a
true 	copy 	of 	the 	Bureau 	of 	Economics 	Staff 	Report 	titled
Deregulation 	in 	the 	Trucking 	Industry, 	dated May 	1988, 	by 	Diane
w. 	Owen, 	and 	a 	true 	copy 	of 	the 	original 	attached 	statement 	by
the 	Staff 	of 	the 	Federal 	Trade 	Commission 	on 	all 	parties 	of
record 	in 	this 	proceeding 	or 	their 	attorneys 	of 	record.
Dated 	October 	27, 	1988, 	at 	San 	Francisco, 	California.
DeMar

I.88-08-046
EXHIBIT 	A
QUALIFICATIONS
OF
DR. 	JAMES 	A. 	LANGENFELD
Dr. 	Langenfeld 	is 	Deputy 	Director 	for 	Antitrust 	in 	the
Bureau 	of 	Economics 	at 	the 	Federal 	Trade 	Commission. 1 	Since 	1979
he 	has 	held 	a 	variety 	of 	positions 	at 	the 	Federal 	Trade
Commission 	including 	Deputy 	Director 	for 	Economic 	Policy
Analysis, 	Economic Advisor 	to 	Commissioner 	Terry 	Calvani,
Assistant 	to 	the 	Director 	of 	the 	Federal 	Trade 	Commission's
Bureau 	of 	Competition, 	and 	economist 	in 	the 	Bureau 	of 	Economics.
Previously 	he 	served 	as 	an 	economist 	at 	General 	Motors, 	the
Interstate 	Commerce 	Commission, 	and Amtrak.
In 	his 	current 	position, 	Dr. 	Langenfeld 	supervises 	all 	of
the 	Bureau's 	economic 	analysis 	on 	antitrust 	matters, 	reviews 	all
of 	the 	agency's 	antitrust 	enforcement 	actions, 	and 	recommends
actions 	to 	the 	Federal 	Trade 	Commission. 	As 	Assistant 	to 	the
Director 	of 	the 	Bureau 	of 	Competition he 	reviewed 	non-merger
antitrust 	enforcement 	for 	the 	Director. 	As 	a 	staff 	economist, 	he
analyzed 	specific 	antitrust 	cases.
Dr. 	Langenfeld 	has 	also 	analyzed 	and 	reviewed 	economic
regulations, 	including 	those 	governing 	trucking. 	As 	Deputy
Director 	for 	Economic 	Policy 	Analysis 	he 	supervised 	studies 	and
Federal 	Trade 	Commission 	staff 	comments 	on 	existing 	and 	proposed
1 	The 	Federal 	Trade 	Commission 	investigates 	and 	enforces
antitrust 	laws 	covering 	predatory 	behavior 	and 	destructive
competition, 	mergers, 	vertical 	restraints, 	and 	other 	relevant
practices 	covered 	by 	the 	Federal 	Trade 	Commission 	Act, 	The
Clayton 	Act, 	and 	the 	Sherman 	Act.

\ .
I.88-08-046
regulations. 	In 	particular, 	he 	supervised 	and 	reviewed 	the
submission 	of 	comments 	to 	the 	California 	Public 	utilities
Commission 	for 	the 	hearings 	en 	bane 	on 	trucking 	deregulation 	and
the 	Federal 	Trade 	Commission's 	staff 	report 	entitled, 	"De-
regulation 	of 	the 	Trucking 	Industry." 	He 	testified 	before 	the
California 	Public 	utilities 	Commission's 	hearings 	en 	bane 	on
trucking 	deregulation 	in March 	of 	1988.
Dr. 	Langenfeld 	has 	also 	analyzed 	regulations 	in 	the
transportation 	and 	other 	industries 	in 	his 	previous 	positions.
He 	has 	written 	articles 	on 	antitrust 	and 	other 	forms 	of
regulation, 	including 	his 	Ph.D 	thesis 	on 	regulation 	of 	the
automobile 	industry.
Dr. 	Langenfeld 	received 	his 	Ph.D. 	in 	economics 	from
Washington 	University 	in 	st. 	Louis 	and 	his 	B.A. 	in 	economics 	from
Georgetown 	University.

1.88-08-046
EXHIBIT 	B
TESTIMONY 	OF
DR. 	JAMES 	A. 	LANGENFELD
DEPUTY 	DIRECTOR FOR ANTITRUST
BUREAU OF 	ECONOMICS
FEDERAL TRADE 	COMMISSION
WASHINGTON, 	DC

I.88-08-046
TABLE 	OF 	CONTENTS
I. 	Introduction 	and 	Summary. 	. 	. 	. 	. 	. 	. 	. 	. 	. 	. 	. 	. 	• 	.. 	1
II. 	The 	Effects 	of 	Deregulation 	2
A.
B.
Price 	Reductions
Efficiency 	Gains
2
5
III. 	Arguments 	Against 	Deregulation 	7
A.
B.
C.
"Destructive 	Competition" 	. 	• 	. 	. 	. 	. 	. 	•
Service 	to 	Smaller 	Communities 	. 	. 	. 	. 	.
Safety
7
14
15

3
1.88-08-046
I. 	Introduction 	and 	Summary
I 	am 	Dr. 	James 	Langenfeld, 	Deputy 	Director 	for 	Antitrust,
Bureau 	of 	Economics, 	Federal 	Trade 	Commission 	(FTC). 	On 	behalf
of 	the 	staff 	of 	the 	Bureau 	of 	Economics 	of 	the 	FTC, 	I 	am 	pleased
to 	testify 	on 	the 	impact 	of 	deregulation 	on 	the 	trucking
industry. 2
Our 	interest 	in 	this 	proceeding 	arises 	from 	the 	FTC's
mandate 	to 	preserve 	competition 	and 	protect 	consumers 	from
deceptive 	and 	unfair 	business 	practices. 3 	During 	recent 	years
the 	Commission's 	staff 	has 	studied the 	deregulation 	of 	trucking
and, 	where 	appropriate, 	has 	advocated 	increased 	reliance 	on
market 	forces 	at 	both 	the 	federa1 4 	and 	the 	state 	level. 5 	In
2 	These 	comments 	represent 	the 	views 	of 	the 	staff 	of 	the
Bureau 	of 	Economics 	of 	the 	Federal 	Trade 	Commission. 	They 	are
not 	necessarily 	the 	views 	of 	the 	Commission 	or 	any 	individual
commissioner. 	Any 	questions 	regarding 	this 	testimony 	should be
directed 	to 	James 	Langenfeld, 	Bureau 	of 	Economics, 	Federal 	Trade
Commission, 	Washington, 	DC 	20580, 	(202) 	326-3423.
See 	15 	U.S.C. 	Section 	42 	et 	seq.
4 	See 	Comments 	of 	the 	Staff 	of 	the 	Federal 	Trade 	Commission
on 	Pricing 	Practices 	of 	Motor 	Common 	Carriers 	of 	Property 	Since
the 	Motor Carrier Act 	of 	1980, 	Ex 	Parte No. 	MC-166, 	Before 	the
Interstate 	Commerce 	Commission 	(January 	19, 	1983); 	Supplementary
Comments 	of 	the 	Bureaus 	of 	comp~tition, Consumer 	Protection 	and
Economics, 	Federal 	Trade 	Commission 	on 	the 	Exemption 	of Motor
Contract 	Carriers 	from 	Tariff 	Filing 	Requirements, 	Ex 	Parte No.
MC-165, 	Before 	the 	Interstate 	Commerce 	Commission 	(1983); 	and 	D.
Breen, 	Bureau 	of 	Economics 	of 	the 	Federal 	Trade 	Commission,
Regulatory 	Reform 	and 	the 	Trucking 	Industry: 	An 	Evaluation 	of
the 	Motor 	carrier Act 	of 	1980, 	Submitted 	to 	the 	Motor 	Carrier
Ratemaking 	Study 	Commission 	(March 	1982).
5 	See 	Letter 	from 	David 	T. 	Scheffman, 	Director, 	Bureau 	of
Economics, 	Federal 	Trade 	Commission 	Staff 	to 	Victor 	weissor,
Executive 	Director, 	Public 	utilities 	Commission, 	State 	of
California, 	Concerning 	Contract 	Trucking 	Deregulation 	(February
16, 	1988); 	Letter 	from 	Janet 	M. 	Grady, 	Regional 	Director, 	San
(continued ... )
1

1.88-08-046
addition, 	the 	Bureau 	of 	Economics 	of 	the 	FTC 	pUblished 	a 	report
on 	trucking 	deregulation 	earlier 	this 	year. 6
Economic 	deregulation 	lowers 	trucking 	rates 	and 	promotes
efficiency. 	critics 	of 	deregulation 	allege 	that 	it 	leads 	to
destructive 	competition, 	reduced 	service 	to 	small 	communities,
and 	unsafe 	trucking, 	but 	there 	is 	little 	support 	for 	the 	first
two 	of 	these 	allegations 	and 	at 	best mixed 	support 	for 	the 	last.
II. 	The Effects 	of 	Deregulation
A. 	Price 	Reductions
Rates 	paid by 	shippers 	have 	fallen 	on 	interstate 	shipments
following 	the 	enactment 	of 	the Motor 	Carrier Act 	of 	1980 	(which
largely deregulated 	trucking 	on 	the 	federal 	level) 	and 	on
intrastate 	shipments 	in 	states 	that 	have deregulated 	trucking.
The magnitude 	of 	the 	price 	decline 	directly 	attributable 	to
deregulation 	at 	the 	federal 	level 	is 	difficult 	to 	determine
because 	deregulation 	coincided with 	a 	general 	economic 	recession.
Moreover, 	official 	rate 	bureau 	tariff 	schedules 	are 	not 	reliable
indicators 	of 	prices 	actually paid by 	shippers, 	because 	carriers
5( ... continued)
Francisco Regional 	Office, 	Federal 	Trade 	Commission 	staff 	to
Senator Rebecca 	Q. 	Morgan, 	Concerning 	Contract 	Trucking
Regulation 	in California 	(December 	31, 	1987); 	Letter 	from John
Mendenhall, 	Acting 	Regional 	Dir~ctor, Cleveland Regional 	Office,
Federal 	Trade Commission Staff, 	to The Honorable 	Frank Sawyer,
Ohio House 	of Representatives, 	concerning 	Contract 	Carrier Motor
Freight Rates 	(February 	16, 	1988); 	Comments 	of 	the 	Federal 	Trade
Commission 	staff 	to 	the 	Legislative Audit 	Council 	of 	the 	State
of 	South 	Carolina 	on 	Possible 	Restrictive 	or Anticompetitive
Practices 	in 	South 	Carolina's 	Public 	Service 	Commission 	Statutes
(September 	29, 	1987); 	and 	Statement 	of 	the 	staff 	of 	the 	Federal
Trade 	Commission 	on 	Economic 	Deregulation 	of 	Trucking 	to 	the
House 	and 	Senate 	Transportation 	Committees, 	Washington 	State
Legislature 	(March 	7, 	1987).
6 	D. 	S. 	Owen, 	Deregulation 	in 	the 	Trucking 	Industry, 	Bureau
of 	Economics, 	Federal 	Trade 	commission, 	May 	1988.
2

S. 	Ying, 	"Implications 	of
and 	Technical 	Change 	in 	the
Cost 	Analysis 	of 	the 	Effects
Mimeo, 	University 	of
1.88-08-046
have 	competed 	by 	offering 	discounts 	of 	15 	percent 	to 	40 	percent
off 	official 	rates. 7 	The 	most 	useful 	price 	data 	have 	been
gathered 	in 	surveys 	of 	shippers 	about 	changes 	in 	the 	prices 	they
pay. 	Moore 	finds 	that 	average 	interstate 	truckload 	(TL) 	rates
fell 	about 	25 	percent 	between 	1977 	and 	1982; 	average 	less 	than
truckload 	(LTL) 	rates 	fell 	about 	12 	percent. 8 	Moore 	states 	that
LTL 	rates 	dropped 	less 	than 	TL 	rates 	as 	a 	percentage 	of 	their
regulated 	levels 	because 	more 	truckers 	entered 	the 	truckload 	part
of 	the 	business. 	These 	declines 	occurred 	despite 	the 	more 	than
doubling 	of 	fuel 	prices 	over 	the 	same 	period. 	Prices 	have
remained 	low 	after 	the 	initial 	adjustment 	to 	deregulation 	as
independent 	rate 	filings 	and 	rate 	discounting 	have 	become
standard 	practice. 9 	While 	prices 	have 	been 	lowered, 	shippers
overwhelmingly 	indicate 	that 	service 	quality 	has 	improved 	or
remained 	constant. 10
Price 	declines 	have 	also 	been 	documented 	in 	states 	with
deregulation 	of 	intrastate 	general-freight 	trucking. 	Beilock and
Freeman 	conducted 	a 	series 	of 	surveys 	of 	Florida 	and Arizona
7 	Interstate 	Commerce 	Commission, 	Office 	of 	Transportation
Analysis, 	Highlights 	of 	Activity 	in 	the 	Property Motor 	Carrier
Industry, 	Staff 	Report 	No. 	10, 	March 	1986.
8 	T. 	G. 	Moore, 	"Rail 	and 	Truck Reform 	-- 	The Record 	So
Far," 	RegUlation, 	November/December 	1983, 	33-41, 	and Moore, 	"Rail
and 	Trucking 	Deregulation," 	in 	L. 	W. 	Weiss 	and M. 	W. 	Klass
(eds.), 	Regulatory 	Reform: 	Wha£ 	Actually 	Happened, 	Boston:
Little, 	Brown, 	1986. 	We 	note 	that 	a 	recent 	study 	using 	a 	more
limited 	data 	set 	found 	no 	significant 	change 	in 	trUCking 	rates 	at
the 	federal 	level 	due 	to 	deregulation. 	See 	K. 	D. 	Boyer, 	"The
Costs 	of 	Price 	RegUlation: 	Lessons 	from 	Railroad 	Deregulation,"
Rand 	Journal 	of 	Economics, 	Autumn 	1987, 	18:3, 	408-416.
9 	Standard 	& Poor's, 	Railroads 	and 	Trucking: 	Basic
Analysis, 	Standard 	& Poor's 	Industry 	Surveys 	(April 	2, 	1987).
10 	Moore 	(1983, 	1986) 	and 	J.
RegUlatory 	Reform 	for 	Productivity
Trucking 	Industry: 	An 	Econometric
of 	the 	Motor 	Carrier Act 	of 	1980,"
California, 	Berkeley, 	October 	1986.
3

I.88-08-046
following 	deregulation 	and 	found 	that 	approximately 	60 	percent 	of
shippers 	reported 	declines 	in 	the 	prices 	paid 	to 	carriers 	since
deregulation 	and 	another 	20 	percent 	reported 	no 	change. ll 	Again,
most 	shippers 	reported 	that 	service 	quality 	did 	not 	suffer.
Beilock 	and 	Freeman's 	conclusion was 	reaffirmed 	by 	Blair, 	et 	al.,
who 	estimated 	that 	the 	deregulation 	of 	intrastate 	trucking 	in
Florida 	led 	to 	a 	15 	percent 	average 	reduction 	in 	motor 	carrier
rates 	between 	1980 	and 	1982. 12
Similar documented 	declines 	in 	intrastate 	rates 	are 	reported
after 	deregulatory 	moves 	in 	Wisconsin 	and 	Oregon. 13 	In
California 	the 	declines 	have 	been 	reported 	for 	those 	segments 	of
the market 	which 	have 	been 	deregulated. 	California 	fresh 	fruit
and 	vegetable 	(FF&V) 	shipments 	were 	essentially 	deregulated 	after
July 	1983, 	when minimum 	rate 	tariffs 	were 	cancelled 	and 	not
replaced 	with 	transition 	tariffs. 	A 1986 	survey 	of 	FF&V 	shippers
and 	carriers 	found 	that 	up 	to 	70 	percent 	of 	truckload 	shippers
reported 	decreased 	real 	rates 	(adjusted 	for 	inflation) 	after
11 	R. 	Beilock, 	and 	J. 	Freeman, 	"Motor 	carrier 	Deregulation
in 	Florida," 	Growth 	and 	Change, 	April 	1983, 	14:2, 	31-41; 	Beilock
and 	Freeman, 	"Florida Motor 	Carrier 	Deregulation: 	Perspectives
of 	Urban 	and 	Rural 	Shippers/Receivers," 	American 	Journal 	of
Agricultural 	Economics, 	February 	1984, 	66:1, 	91-98; 	Beilock and
Freeman, 	The 	Impact 	of 	Motor 	Carrier 	Deregulation 	on 	Freight
Rates 	in 	Arizona 	and 	Florida, 	Final 	Report, 	U.S. 	Department 	of
Transportation, 	April 	30, 	1985; 	and 	Freeman 	and 	Beilock, 	The
Effects 	of 	Transportation 	Deregulation 	on 	Motor 	Carrier 	Service
in 	Florida 	and 	Arizona, 	Final 	Report, 	U.S. 	Department 	of
Transportation, 	May 	8, 	1984.
12 	R. 	D. 	Blair, 	D. 	L. 	Kaserman, 	and 	J. 	T. 	McClave, 	"Motor
Carrier 	Deregulation: 	The 	Florida 	Experiment," 	Review 	of
Economics 	and 	Statistics, 	February 	1986, 	68:1, 	159-64.
13 	D. 	W. 	Baker, 	"Does 	the 	Public 	Benefit 	from
Deregulation?" 	Traffic 	World, 	February 	9, 	1987, 	83-9, 	and 	Office
of 	the 	Commissioner 	of 	Transportation, 	State 	of 	Wisconsin,
Deregulation 	of 	Wisconsin 	Motor 	Carriers, 	July 	1983.
4

15
, '
1.88-08-046
deregulation. 14 	Up 	to 	93 	percent 	of 	truckload 	carriers 	reported
decreased 	real 	rates. 	Moreover, 	21 	percent 	of 	the 	FF&V 	shippers
reported 	that 	overall 	service 	had 	improved, 	while 	less 	than 	half
of 	that 	percentage 	reported 	that 	service 	had 	declined. 15
A recent 	study 	estimates 	savings 	of 	over 	$300 	million 	would
result 	from 	trucking 	deregulation 	in 	Indiana. 16 	Researchers 	also
find 	that 	Texas' 	tight 	regulation 	of 	~ntrastate rates 	often
forces 	shippers 	to 	pay 	hundreds 	of 	dollars 	more 	for regulated
intrastate 	hauls 	than 	for 	longer, 	deregulated 	interstate 	hauls. 17
In 	short, 	trucking 	deregulation 	at 	the 	state 	level 	is 	apparently
as 	effective 	overall 	as 	federal 	deregulation 	in 	reducing 	prices
paid by 	shippers.
B. 	Efficiency 	Gains
Deregulation 	has 	allowed 	the 	trucking 	industry 	to 	use
resources 	more 	efficiently. 	It 	has 	lead 	to 	cost 	savings 	in 	the
trucking 	industry 	through 	reduced 	hauling 	of 	empty 	trucks 	and
allowed 	better 	network 	design 	and 	traffic 	flows. 	In 	addition, 	it
has 	reduced 	logistics 	costs 	for 	shippers. 	For 	example, 	shippers
now have 	the 	opportunity 	to 	choose 	the 	particular price/quality
14 	N.G. 	Frey, 	R.H. 	Krolick, 	and J.L. 	Tontz, 	"The 	Impact 	of
Motor 	Carrier 	Deregulation: 	California 	Intrastate 	Agricultural
Products," 	Logistics 	and 	Transportation 	Review, 	September 	1986,
22:3, 	259-76.
Frey, 	Krolick, 	and 	Tontz, 	at 	268.
16 	Indiana 	Legislative 	Services 	Agency, 	Office 	of 	Fiscal
Review, 	"Motor 	Carrier 	Regulation 	in 	Indiana, 	Sunset 	Audit, 	Motor
Carrier 	Division 	of 	the 	Indiana 	Utility 	Regulatory 	Commission,"
(July 	1987).
17 	B. 	L. 	Weinstein, 	and 	H. 	T. 	Gross. 	"Transportation 	and
Economic 	Development: 	The 	Case 	for 	Reform 	of 	Trucking 	Regulation
in 	Texas," 	Center 	for 	Enterprising, 	Southern 	Methodist
University 	(February 	1987).
5

1.88-08-046
of 	service 	combination 	that 	best 	suits 	their 	needs. 18
Lower 	prices 	and 	more 	efficient 	service 	since 	deregulation
have 	dramatically 	reduced 	logistics 	costs; 	that 	is, 	the 	costs 	of
moving 	and 	storing 	raw 	materials 	and 	of 	transporting 	finished
products. 	According 	to 	Delaney, 	estimates 	of 	annual 	savings 	on
all 	forms 	of 	transportation 	and 	logistics 	expenditures 	nationwide
between 	1980 	and 	1986, 	including 	reduqed 	transport 	prices 	and
shipper 	and 	manufacturer 	inventory 	savings, 	range 	from 	$56
billion 	to 	$90 	billion. 19 	If 	these 	figures 	are 	correct, 	u.s.
logistics 	costs 	dropped 	from 	almost 	15 	percent 	of 	GNP 	in 	1981 	to
approximately 	11 	percent 	of 	GNP 	in 	1986, 	and 	the 	ratio 	of
logistics 	expenditures 	to 	sales 	revenues 	of 	a 	sample 	of
manufacturers 	and 	retailers 	decreased 	by 	over 	20 	percent. 	Of
course, 	factors 	other 	than 	trucking 	deregulation 	have 	contributed
to 	these 	savings; 	airline 	and 	rail 	deregulation 	in 	the 	late
seventies 	and 	early 	eighties 	have 	also 	increased 	efficiency 	in
those 	transport 	modes. 	In 	addition, 	Delaney 	did 	not 	control 	for
macroeconomic 	changes 	such 	as 	interest 	rate 	movements 	that 	could
also 	have 	affected 	inventory 	levels 	during 	the 	relevant 	period.
Beier 	and 	Stone 20 	have 	adjusted 	Delaney's 	calculations 	to
18 	See 	N. 	L. 	Rose, 	"An 	Economic Assessment 	of 	Surface
Freight 	Transportation 	Deregulation," 	Working 	Paper 	1971-88,
Sloan 	School 	of Management, 	Massachusetts 	Institute 	of
Technology, 	1988, 	at 	20.
19 	R. 	V. 	Delaney, 	"The 	Disunited 	States: 	A Country 	in
Search 	of 	an 	Efficient 	Transportation 	Policy," 	Cato 	Institute
Policy 	Analysis 	No. 	84, 	March 	10, 	1987, 	cited 	in 	Delaney,
"Managerial 	and 	Financial 	Challenges," 	Transportation 	Quarterly
January 	1986, 	36. 	Also 	see 	ICC 	(1986).
20 	F. 	J. 	Beier 	and 	G. 	B. 	Stone, 	"Review 	of 	the 	Delaney-
Evans 	Debate," 	Cambridge, 	Massachusetts: 	U.S. 	Department 	of
Transportation, 	Transportation 	Systems 	Center, 	January 	1988.
Beier 	and 	Stone 	were 	responding 	to 	criticisms 	of 	Delaney 	in
Michael 	K. 	Evans, 	"The 	Macroeconomic 	Implications 	of 	Trucking
Deregulation," 	The 	Coalition 	for 	Sound 	General 	Freight
Regulation, 	1987.
6

1.88-08-046
compensate 	for 	some 	of 	these 	problems, 	and 	find 	the 	benefits 	to
be 	between 	$80 	and 	$90 	billion 	per 	year. 	Trucking 	is 	the
dominant 	mode 	of 	transport 	for 	manufactured 	goods, 	and 	trucking
deregulation 	can 	claim 	credit 	for 	a 	substantial 	share 	of 	the
recent 	reductions 	in 	logistics 	costs 	estimated 	by 	Delaney 	and 	by
Beier 	and 	stone. 21
III. 	Arguments 	Against 	Deregulation
Opponents 	of 	trucking 	deregulation 	have 	made 	several
predictions 	about 	the 	effects 	of 	partial 	deregulation. 	They have
claimed 	that: 	(1) 	"destructive 	competition" 	ultimately 	harmful
to 	consumers 	will 	ensue; 	(2) 	service 	to 	small 	communities 	will
deteriorate; 	and 	(3) 	highway 	safety will 	deteriorate. 	Research 	on
the 	effects 	of 	deregulation 	at 	the 	federal 	and 	state 	levels
offers 	little 	support 	for 	the 	first 	two 	claims, 	and 	mixed 	support
at 	best 	for 	the 	third.
A. 	"Destructive 	Competition"
1. 	Predation
Opponents 	of 	trucking 	deregulation 	have 	argued 	that 	relaxed
price 	aI:ld 	entry 	restrictions 	may 	lead 	to 	"destructive
competition." 	This 	argument's 	central 	contention 	is 	that 	large,
well-financed 	carriers 	will 	drive 	out 	their 	competitors 	by
21 	For 	example, 	if 	we 	assume 	that 	the 	benefits 	are 	roughly
proportional 	to 	the 	amount 	of 	traffic 	that 	trucks 	haul 	(about 	70
percent, 	according 	to 	Transportation 	in 	America 	(March 	1987) 	at
4), 	the 	benefits 	of 	trucking 	deregulation 	are 	between 	$39 	and 	$63
billion 	per year 	(i.e., 	$56 	billion 	x 	70 	percent 	= $39 	billion;
$90 	billion 	x 	70 	percent 	of 	ton 	miles 	= $63 	billion).
7

1.88-08-046
practicing 	"predatory 	pricing;" 	that 	is, 	they 	will 	price 	their
services 	below 	their 	average 	variable 	costs. 	When 	rivals 	leave
the 	market, 	the 	predators 	will 	exploit 	their 	new market 	power by
raising 	prices 	above 	competitive 	levels, 	thus 	recouping 	their
earlier 	losses 	and 	increasing 	their 	profits.
As 	I 	will 	discuss 	shortly, 	in 	general 	predatory 	pricing 	is
highly 	unlikely 	to 	occur. 	It would 	be 	most 	likely 	to 	happen,
however, 	in 	industries with 	a 	high 	degree 	of 	"sunk costs.,,22
Under 	such 	conditions, 	entry by 	new 	firms 	may 	be 	discouraged
because 	after 	entry, 	these 	firms 	would 	be 	unable 	to 	shift many 	of
their 	resources 	to 	more 	profitable 	alternatives 	if 	predators 	cut
prices 	below 	cost. 	This 	lack 	of 	entry 	could 	result 	in 	perennial
supracompetitive 	pricing 	of 	services 	in 	concentrated markets.
The 	trucking 	industry 	comprises 	two 	distinct 	segments:
truckload 	(TL) 	shipments 	(shipments 	of 	10,000 	pounds 	or more) 	and
less-than-truckload 	(LTL) 	shipments 	(those 	of 	less 	than 	10,000
pounds). 	Truckload 	shipments 	generally 	go 	directly 	from 	shipper
to 	receiver without 	intermediate 	handling; 	the 	only 	equipment
needed 	is 	the 	truck 	itself. 	Most 	trucks 	have 	a 	variety 	of 	uses
and 	are 	easily 	resold, 	suggesting 	that 	there 	are 	few 	sunk 	costs
in 	the 	TL 	industry. 	The 	TL market 	is 	thus 	characterized 	by 	low
capital 	requirements, 	few 	sunk 	costs, 	and 	ease 	of 	entry.
22 	Sunk 	costs 	are 	those 	costs 	which 	once 	borne 	by 	a 	firm
cannot 	be 	recouped 	should 	the 	firm 	exit 	the 	market. 	For
instance, 	much 	of 	the 	investment 	in 	a 	steel 	plant 	is 	sunk 	because
once 	it 	is 	undertaken, 	it 	cannot 	be 	recouped 	should 	the 	firm
decide 	to 	withdraw 	from 	the 	market.
8

1.88-08-046
Predatory 	pricing 	is 	unlikely 	in 	this 	segment 	because
supracompetitive 	profits 	could 	easily 	be 	taken 	away 	by 	new
entrants. 	Economists 	have 	used 	TL 	trucking 	as 	an 	example 	of 	a
"contestable" 	market, 	or 	one 	that 	would 	behave 	in 	a 	competitive
fashion 	even 	if 	the 	market 	were 	highly 	concentrated. 23
Most 	opponents 	of 	deregulation 	have 	focused 	instead 	on 	the
danger 	of 	predatory 	pricing 	in 	the 	LTL 	segment. 	LTL 	shipments
typically 	travel 	from 	the 	shipper 	to 	one 	or more 	consolidation
centers 	("break-bulk 	facilities") 	before 	going 	to 	the 	receiver 	or
to 	another 	terminal 	for 	pick-up. 	The 	LTL market 	is 	thus
characterized 	by 	higher 	capital 	requirements 	than 	the 	TL market.
Opponents 	of 	deregulation 	have 	contended 	that 	these 	high 	entry
costs 	constitute 	a 	barrier 	to 	entry which 	raises 	the
attractiveness 	of 	predation 	by 	ensuring 	its 	profitability.
Economists 	and 	jurists 	disagree 	about 	whether 	price
predation 	can be 	a 	rational 	strategy 	for 	firms, 	but 	generally
agree 	that 	it 	rarely 	occurs 	in 	practice. 	Bork, 	Easterbrook,
McGee, 	and 	others 	argue 	that 	predation 	is 	unlikely 	because 	it 	is
costly 	to 	the 	predator. 24 	Rati6nal 	rivals 	will 	understand 	that
o
23 	E. 	E. 	Bailey, 	and 	A. 	F. 	Friedlaender, 	"Market 	structure
and Multiproduct 	Industries," 	Journal 	of 	Economic 	Literature 	20
(September 	1982), 	20, 	1024-48.
24 	See 	R. 	H. 	Bork, 	The 	Antitrust 	Paradox, 	New 	York: 	Basic
Books, 	1978, 	F. 	H. 	Easterbrook, 	"Predatory 	Strategies 	and
Counterstrategies," 	University 	of 	Chicago 	Law 	Review 	48 	1981,
48, 	263-337, 	J. 	S. 	McGee, 	"Predatory 	Price 	Cutting: 	The 	Standard
oil 	(N.J.) 	Case," 	Journal 	of 	Law 	and 	Economics 	October 	1958, 	1,
137-69, 	and McGee, 	"Predatory 	Pricing 	Revisited," 	Journal 	of 	Law
and 	Economics, 	October 	1980, 	23:2, 	289-330.
9

I.88-08-046
any 	predatory 	price-cutting 	is 	temporary 	and will 	simply wait 	out
the 	attack. 	Even 	if 	rivals 	exit, 	a 	predator 	usually 	cannot 	raise
prices 	to 	exploit 	its 	monopoly 	power 	because 	barriers 	to 	entry
such 	as 	sunk 	costs 	and 	differentially 	higher 	costs 	to 	entrants
are 	low 	in 	most 	industries. 	Predation 	is 	therefore 	often viewed
as 	an 	irrational 	strategy. 	However, 	some 	recent 	game-theoretic
studies 	suggest 	that 	predation may 	be 	rational 	if 	the 	predator
has 	significant 	"inside 	information" 	about 	its 	own 	costs 	and
strategies. 25 	In 	particular, 	a 	firm 	facing 	uninformed 	rivals 	may
o
prey 	on 	some 	of 	these 	rivals 	in 	order 	to 	build 	a 	reputation 	as 	a
low 	cost 	or 	irrational 	competitor, 	and 	thus 	deter 	entry 	into 	that
or 	other markets. 26 	Despite 	such 	theoretical 	possibilities, 	the
Supreme 	Court 	noted 	in 	its 	1986 	Matsushita 	v. 	Zenith 	decision,
"predatory 	pricing 	schemes 	are 	rarely 	tried 	and 	even more 	rarely
successful. 1127
25 	See 	D. 	M. 	Kreps 	and 	R. 	Wilson, 	"Reputation 	and 	Imperfect
Information," 	Journal 	of 	Economic 	Theory, 	August 	1982, 	27:2, 	253-
79, 	P. 	Milgrom 	and 	J. 	Roberts, 	"Limit 	Pricing 	and 	Entry Under
Incomplete 	Information: 	An 	Equilibrium Analysis. II 	Econometrica,
March 	1982, 	50:2, 	443-59, 	and 	Milgrom 	and 	Roberts, 	"Predation,
Reputation, 	and 	Entry 	Deterrenc~," 	Journal 	of 	Economic 	Theory,
August 	1982, 	27:2, 	280-312.
26 	In 	addition, 	predatory 	strategies 	that 	are 	not 	price-
based, 	but 	use 	other 	instruments 	that 	raise 	rivals' 	costs, 	have
been 	explored 	in 	the 	recent 	literature. 	Such 	strategies may 	be
more 	rational 	than 	price 	predation. 	See 	S. 	C. 	Salop 	and 	D. 	T.
Scheffman, 	"Raising 	Rivals' 	Costs," 	American 	Economic 	Review,
May 	1983, 	73, 	267-271.
27 	Matsushita 	Electric 	Industrial 	Co., 	Ltd. 	v. 	Zenith 	Radio
Corporation, 	106 	S.Ct. 	1348 	(1986), 	p. 	1357, 	citing 	P. 	Areeda 	and 	D.
Turner, 	"predatory 	Pricing 	and 	Related 	Practices 	Under 	Section 	2
(continued ... )
10

I.88-08-046
Policy 	prescriptions 	for 	the 	LTL 	trucking 	industry 	need 	not
be 	based 	solely 	on 	such 	general 	theoretical 	and 	empirical
considerations, 	since 	there 	are 	studies 	indicating 	that 	LTL
trucking 	is 	not 	unusually 	conducive 	to 	predation 	and 	that 	LTL
carriers 	have 	not 	practiced 	predation 	since 	deregulation.
Less-than-truckload 	trucking 	seems 	no 	more 	susceptible 	to
predation 	than 	most 	other 	industries. 	A General 	Accounting
Office 	(GAO) 	study 	concludes 	that 	barriers 	to 	entry 	in 	LTL
trucking 	primarily 	sunk 	costs 	involved 	in 	providing
terminals, 	financial 	capital 	requirements 	for 	effective 	entry,
and 	impediments 	to 	entry 	imposed 	by 	state 	regulation 	of
intrastate 	trucking 	-- 	are 	only 	"moderate." 28 	In 	particular, 	the
sunk 	costs 	of 	providing 	terminals 	may 	not 	be 	as 	great 	as
opponents 	of 	deregulation 	imply. 	Carriers 	can 	often 	lease
warehouses 	to 	use 	as 	terminals; 	by 	renting 	terminal 	space 	rather
than 	buying 	it, 	they 	can 	reduce 	these 	sunk costs 	to 	near 	zero.
Overall, 	predation 	seems 	no 	more 	likely 	to 	occur 	in 	LTL 	trucking
than 	in 	unregulated 	industries.
27( 	t'	... con 	l.nued)
of 	the 	Sherman Act," 	Harvard 	Law 	Review 	1975, 	88, 	Bork 	(1978),
Easterbrook 	(1981), 	and 	McGee 	(1958, 	1980). 	See 	also 	J. 	C. 	Miller,
III 	and 	P. 	Pautler, 	"Predation: 	The 	Changing 	View 	in 	Economics
and 	the 	Law," 	Journal 	of 	Law 	and 	Economics, 	May 	1985, 	28, 	495-
502 	and 	G. 	Saloner, 	"Predation, 	Mergers, 	and 	Incomplete
Information", 	Rand 	Journal 	of 	Economics, 	Summer 	1987, 	18:2, 	165-186.
28 	General 	Accounting 	Office, 	Trucking 	Regulation: 	Price
Competition 	and 	Market 	structure 	in 	the 	Trucking 	Industry, 	Report
to 	Congressional 	Requesters 	(February 	1987), 	p. 	18.
11

1.88-08-046
The 	GA0 29 	confirms 	earlier 	results 	from 	the 	ICC 	and 	the
Motor 	Carrier 	Ratemaking 	Study 	Commission 30 	in 	finding 	no
predatory 	behavior 	in 	LTL 	trucking. 	Carriers 	have 	apparently
used 	discount 	pricing 	not 	to 	drive 	rivals 	from 	the 	market 	but 	to
promote 	new 	services 	or 	to 	reflect 	the 	lower 	costs 	of 	serving
high-volume 	or 	frequent 	shippers.
2. 	Other 	Forms 	of 	"Destructive 	Competition"
Some 	commentators 	have 	suggested 	a 	second way 	that 	an
unregulated 	trucking 	industry 	can 	be 	viewed 	as 	"destructively
competitive." 	Firms 	operate 	as 	long 	as 	they 	cover 	their
variable 	costs. 	To 	the 	extent 	that 	the 	trucking 	industry 	is
characterized 	by 	declining 	demand, 	large 	sunk 	costs, 	and 	a 	low
ratio 	of 	variable 	to 	total 	costs, 	there 	may 	be 	excess 	capacity
and 	pressure 	to 	cut 	price 	below 	average 	total 	cost 	(but 	above
average 	variable 	cost). 	If 	price 	competition breaks 	out, 	prices
may 	persist 	below 	the 	average 	total 	cost 	of 	providing 	services
because 	the 	(assumed) 	sunk 	nature 	of 	costs 	makes 	exit 	difficult
and 	because 	investment 	cannot 	b~ easily 	transferred 	to 	other
markets 	or 	industries. 	As 	long 	as 	variable 	costs 	are 	relatively
29 	GAO, 	Price 	Competition 	(1987). 	See 	also 	L. 	H. 	Harrington,
"Predatory 	Truck 	Pricing 	Just 	a 	Myth, 	Says 	GAO 	Report." 	Traffic
Management, 	June 	1987, 	13-4.
30 	Motor 	Carrier 	Ratemaking 	Study 	Commission. 	Collective
Ratemaking 	in 	the 	Trucking 	Industrv. 	Report 	to 	the 	President 	and
the 	Congress 	of 	the 	United 	States 	(June 	1, 	1983).
12

1.88-08-046
small, 	firms 	may 	suffer 	chronic 	losses 31 	for 	an 	extended 	period
of 	time 	and, 	as 	a 	result, 	may 	try 	to 	reduce 	costs 	by 	skimping 	on
service 	or 	by 	reducing 	investment 	needed 	for 	the 	safe 	operation
of 	vehicles. 	This 	view, 	based 	on 	the 	experience 	of 	the 	1930's,
was 	an 	important 	factor 	in 	the 	impetus 	for 	establishment 	of
federal 	motor 	carrier 	regulation 	in 	1935. 32
Even 	if 	this 	form 	of 	competition 	could 	occur with
undesirable 	results,33 	the 	conditions 	conducive 	to 	this 	sort 	of
destructive 	competition 	do 	not 	appear 	to 	exist 	in 	today's
trucking 	industry. 	Variable 	costs, 	such 	as 	labor 	and 	fuel
expenses, 	comprise 	a 	large 	percentage 	of 	total 	costs. 34 	Further,
there 	appear 	to 	be 	very 	few 	sunk 	costs 	in 	this 	industry, 	except
perhaps 	those 	associated 	with 	regulation. 	Only 	if 	licenses 	to
operate 	are 	difficult 	to 	obtain, 	and 	if 	their 	sale 	is 	prohibited,
are 	sunk 	costs 	likely 	to 	be 	important 	in 	trucking. 	Trucks 	are
31 	Since 	shutting 	down 	would 	not 	eliminate 	the 	need 	to 	pay
off 	fixed 	costs, 	firms 	have 	an 	incentive 	to 	operate 	as 	long 	as 	they
cover variable 	cost 	and 	some 	part 	of 	fixed 	expenses.
32 	See, 	for 	example, 	P. 	D~ 	Locklin, 	Economics 	of
Transportation, 	Homewood, 	Illinois: 	Richard 	D. 	Irwin, 	Inc. 	(1972).
33 	Shippers 	would 	appear 	to 	have 	little 	to 	gain 	from 	using
unacceptably 	low 	quality 	carriers 	and 	driving 	the 	available 	sources
of 	transportation 	into 	bankruptcy. 	Therefore, 	the 	only
circumstances 	where 	this 	would 	be 	plausible 	is 	when 	the 	decreased
quality 	had 	little 	effect 	on 	shippers, 	manufacturers, 	and 	the
consumers 	of 	the 	goods 	shipped, 	but 	negatively 	affected 	others.
34 	California 	Public 	utilities 	Commission, 	Strategic 	Planning
Division, 	"California's 	Trucking 	Industry: 	A Review 	of 	Regulatory
Policies 	and 	Objectives," 	February 	1988, 	at 	32.
13

1.88-08-046
also 	highly mobile 	assets 	which 	may 	readily 	and 	easily 	be
.
transferred 	from 	less 	profitable 	to 	more 	profitable 	markets 	in
response 	to 	fluctuations 	in 	demand, 	or 	sold 	or 	leased 	to 	other
operators. 	It 	is 	unlikely, 	therefore, 	that 	destructive
competition 	of 	this 	kind 	will 	occur 	in 	the 	trucking 	industry.
For 	example, 	Kahn 	states: 	U[D]oes 	trucking 	have 	the 	economic
attributes 	of 	an 	industry 	sUbject 	to 	destructive 	competition? 	It
would 	be 	difficult 	to 	find 	one 	less 	qualified 	... "35
B. 	Service 	to 	Smaller 	Communities
Defenders 	of 	trucking 	regulation 	have 	argued 	that 	service 	to
small 	and 	remote 	communities 	would 	deteriorate 	under
deregulation. 	This 	argument 	implicitly 	assumes 	that 	regulated
carriers 	cross-subsidized 	service 	to 	small 	towns 	at 	rates 	below
cost 	by 	setting 	big-city 	rates 	above 	competitive 	levels. 	In 	a
deregulated market, 	the 	argument 	runs, 	carriers 	will 	be 	unable 	to.
keep 	rates 	between 	larger 	cities 	above 	cost 	and 	so 	will 	not
generate 	sufficient 	revenue 	to 	maintain 	service 	to 	small 	towns 	at
prices 	shippers 	will 	be 	willing 'to 	pay.
In 	fact, 	studies 	generally 	find 	that 	service 	to 	small
communities 	has 	stayed 	constant 	or 	improved 	in 	areas 	that 	have
experienced 	deregulation. 	These 	results 	are 	consistent 	with 	an
ICC 	study which 	indicates 	that 	small-community 	trucking 	has 	never
35 	A. 	E Kahn 	III, 	The 	Economics 	of 	Regulation: 	Volume 	II,
John 	Wiley 	and 	Sons 	(1971) 	at 	173.
14

, ... . ~ ~
I.88-08-046
been 	subsidized 	by 	rates 	between 	large 	cities. 36 	Surveys 	carried
.
out 	by 	the 	Department 	of 	Transportation 	(DOT) 	from 	1980 	to 	1985
consistently 	found 	that 	the 	vast 	majority 	of 	shippers 	in 	rural
areas 	reported 	either 	no 	change 	or 	an 	improvement 	in 	the 	quality
of 	their 	service 	since 	the 	Motor 	Carrier Act 	partially
deregulated 	interstate 	trucking. 37 	A 1982 	ICC 	study 	produced
similar 	results, 	noting 	that 	shippers 	in 	small 	communities 	now
enjoy 	lower 	prices, 	less 	damage 	to 	shipments, 	and 	frequently 	~
service 	options 	than 	before 	deregulation. 	Surveys 	indicate 	that
deregulation 	of 	trucking 	at 	the 	state 	level 	has 	also 	benefited
small 	and 	rural 	shippers. 38
C. 	Safety
The 	third 	argument 	made 	against 	economic 	deregulation 	is
that 	it 	reduces 	highway 	safety. 	Carriers 	struggling 	for 	survival
in 	the 	face 	of 	stiff 	competition 	allegedly 	will 	neglect
36 	Interstate 	Commerce 	Commission, 	An 	Evaluation 	of
Charaes 	That 	Regulatory 	Reform 	will 	Degrade 	Small 	Community
Motor 	Carrier 	Service 	March 	1980.
i
37 	U.S. 	Department 	of 	Transportation, 	Third 	Follow-Up 	Study
of 	Shipper-Receiver Mode 	Choice 	in 	Selected 	Rural 	Communities,
1982-3, 	1986, 	and 	U.S. 	Department 	of 	Transportation, 	Fourth
Follow-Up 	study 	of 	Shipper-Receiver Mode 	Choice 	in 	Selected Rural
Communities, 	1984-5, 	1986.
38 	See 	Beilock 	and 	Freeman 	(1983, 	1984, 	1985) 	and 	S. 	E.
Bolton, 	R. 	L. 	Conn, 	and 	J. 	A. 	Smith, 	Jr., 	"Florida 	Motor 	Carrier
Deregulation: 	The 	Immediate 	Effect 	of 	Sudden 	Deregulation 	from
the 	Perspective 	of 	Shippers/Receivers 	in 	Small 	Communities," 	In
Conference 	on 	Regulatory 	Reform 	in 	Surface 	Transportation,
Preprint 	Papers, 	U.S. 	Department 	of 	Transportation, 	March 	1983.
15

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I.88-08-046
maintenance 	expenditures, 	delay 	the 	replacement 	of 	old vehicles,
and 	overwork 	drivers.
Opponents 	of 	deregulation 	point 	to 	some 	statistics 	that
support 	this 	argument. 	One 	study 	indicates 	that 	the 	average 	age
of 	trucks 	on 	the 	road 	has 	increased 	from 	3 	years 	in 	1979 	to 	5
years 	in 	1984. 39 	Statistics 	compiled 	by 	the 	National 	Safety
council 	and 	disseminated 	by 	the 	American 	Insurance Association
based 	on 	a 	sample 	of 	trucking 	firms 	indicate 	that 	the 	accident
frequency 	rate 	for 	truckers 	rose 	from 	2.65 	per million 	miles 	in
1983 	to 	2.93 	in 	1985. 40 	An 	accident 	in 	this 	study 	is 	defined 	as
a 	motor 	carrier 	incident 	which 	involves 	death, 	injury, 	or
property 	damage 	of 	any 	amount.
Other 	research, 	however, 	indicates 	that 	safety has 	not
decreased 	since 	economic 	deregulation. 	A study 	prepared 	for 	the
Americans 	for 	Safe 	and 	Competitive Trucking 	using 	data 	from 	the
Federal 	Highway 	Administration 	of 	DOT 	shows 	that 	the 	accident
rate, 	the 	injury 	rate, 	and 	the 	fatality 	rate 	per vehicle 	mile
39 	F. 	Baker, 	"Safety 	Implications 	of 	Structural 	Changes
Occurring 	in 	the 	u.S. 	Motor 	Carrier 	Industry," 	Discussion 	Paper
Prepared 	for 	The 	AAA 	Foundation 	for 	Traffic 	Safety, 	Falls 	Church,
VA., 	March 	1985.
40 	See, 	for 	example, 	Standard 	& Poor's 	(1987); 	Nicholas 	A.
Glaskowsky, 	Effects 	of 	Deregulation 	on 	Motor 	Carriers, 	Westport
CT: 	Eno 	Foundation 	for 	Transportation, 	Inc., 	1986; 	and 	Coalition
for 	Sound 	General 	Freight 	Trucking, 	"Highway 	Safety: 	A Cost 	of
Motor 	Carrier 	Deregulation," 	March 	1987.
16

I.88-08-046
traveled 	have 	noticeably 	declined 	since 	1980. 41 	This 	study 	uses
DOT's 	definition 	of 	an 	accident 	as 	an 	incident 	which 	causes
either 	a 	fatality, 	an 	injury, 	or 	at 	least 	$2000 	in 	property
damage. 	The 	author 	adjusts 	the 	DOT 	accident 	figures 	to
compensate 	for 	inflation 	in 	those 	accidents 	where 	property
damage, 	but 	no 	fatalities 	or 	injuries, 	occurred. 	Without 	this
correction, 	accident 	rates 	appear 	to 	show 	a 	dramatic 	increase
deregulation, 	because 	inflation 	has 	increased 	the 	number 	of
incidents which 	qualified 	as 	accidents 	under 	the 	DOT 	definition.
After 	the 	correction 	for 	inflation, 	the 	DOT 	figures 	indicate 	that
deregulation 	does 	not 	appear 	to 	have 	harmed 	highway 	safety.
It 	is 	difficult 	to 	reconcile 	estimates 	that 	the 	accident
frequency 	rate 	for 	truckers 	has 	risen 	since 	deregulation 	with
studies 	that 	show 	fewer 	and 	less 	severe 	accidents. 	Differences
in 	these 	results 	can 	be 	explained 	in 	part 	by 	differences 	in
definitions 	and 	methodology, 	but 	probably 	only 	in 	part. 	However,
a 	recent 	study 	indicates 	that 	deregulation 	has 	had 	no 	effect on
trucking 	safety. 	A joint 	study 	by 	the 	California 	Public
utilities 	Commission 	and 	the 	California 	Highway 	Patrol, 	completed
after 	the 	Commission 	reregulated 	intrastate 	trucking, 	finds 	no
link between 	economic 	deregulation 	and 	trucking 	safety.42
41 	R. 	Cherry, 	1'Did 	Regulatory 	Reform 	Reduce 	Truck 	Safety?"
Paper 	Prepared 	for 	Americans 	for 	Safe 	and 	Competitive 	Trucking,
May 	1987.
42 	California 	Public 	utilities 	commission, 	Joint 	Legislative
Report 	with 	California 	Highway 	Patrol, 	AB 	2678 	Report 	on 	Truck
Safety, 	June 	1987.
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I.88-08-046
Similar 	results 	were 	found 	on 	a 	national 	level 	by 	the 	Office 	of
Technology 	Assessment,43 	and 	by 	Weinstein 	and 	Gross 	in 	Texas. 44
IV. 	Conclusion
Overall, 	interstate 	and 	intrastate 	trucking 	deregulation
appears 	to 	have 	brought 	lower 	prices 	and 	higher 	quality 	service
to 	shippers. 	There 	is 	little 	or 	no 	reason 	to 	believe 	the 	claims
of 	deregulation's 	opponents 	that 	deregulation 	brings 	predatory
pricing 	or 	the 	loss 	of 	service 	to 	small 	communities. 	The
connection 	between 	safety 	and 	economic 	deregulation 	has 	not 	been
clearly 	established, 	so 	it 	appears 	doubtful 	that 	economic
regulation 	is 	an 	efficient 	way 	to 	improve 	safety. 	Given 	the
existing 	research, 	we 	believe 	that 	eliminating 	or 	scaling back 	of
economic 	regulation 	of 	intra-state 	trucking 	can 	result 	in
significant 	benefits 	for 	California.
I 	appreciate 	this 	opportunity 	to 	testify 	before 	you 	on
behalf 	of 	the 	staff 	of 	the 	Bureau 	of 	Economics 	of 	the 	Federal
Trade 	Commission.
43 	Office 	of 	Technology 	Assessment, 	Gearing Up 	for 	Safety:
Motor 	Carrier 	Safety 	in 	a 	competitive 	Environment, 	Congress 	of
the 	United 	States, 	September 	1988.
44 	Weinstein 	and 	Gross 	(1987).
18