FTC Staff Comment Before the Tennessee Comptroller of the Treasury Concerning Trucking Regulation

V900042
SUIte 1437
55 East Monroe Street
Chicago. Illinois 60603
(312) 353-8156
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
CHICAGO REGIONAL OFFICE
June 	28, 	1990 COMMISSION AUTHORIIED
Mr. 	Glen McKay
Assistant 	Director
Division 	of 	state Audit
Tennessee 	Comptroller 	of 	the 	Treasury
suite 	1500
James 	K. 	Polk 	state 	Office 	Building
Nashville, 	Tennessee 	37243-0264
Dear Mr. 	McKay:
The 	staff 	of 	the 	Federal 	Trade 	Commission's 	Chicago 	Regional
Office 	and 	Bureau 	of 	Economics 	are 	pleased 	to 	have 	this 	opportu-
nity 	to 	respond 	to 	your 	request 	for 	comments 	regarding 	the
statutes, 	rules 	and 	regulations 	of 	the 	Motor 	Carrier 	Division 	of
the 	Public 	Service 	Commission. 1 In 	general, 	we 	believe 	that
relaxing 	economic 	regulation 	of 	trucking 	would 	benefit 	consumers
and 	competition 	by 	increasing 	choices, 	improving 	service 	and
reducing 	prices 	for 	the 	transportation 	of 	goods.
I. 	INTEREST AND 	EXPERIENCE OF 	THE 	STAFF OF 	THE 	FEDERAL TRADE
COMMISSION
The 	Federal 	Trade 	Commission 	("FTC") 	is 	an 	independent
federal 	agency 	charged with 	enforcing 	section 	5 	of 	the 	Federal
Trade 	Commission Act. 2 section 	5 	prohibits 	unfair 	methods 	of
competition 	and 	unfair 	or 	deceptive 	acts 	or 	practices 	in.or
affecting 	commerce. 3 In 	fUlfilling 	the 	FTC's 	mandate 	to 	enforce
the 	consumer 	protection 	and 	antitrust 	laws 	of 	the 	United 	states,
the 	staff 	of 	the 	FTC 	often 	submits 	comments, 	upon 	request, 	to
federal, 	state, 	and 	local 	governmental 	bodies 	to 	help 	them 	assess
the 	implications 	for 	competition 	and 	consumers 	of 	pending 	policy
issues. 	In 	enforcing 	the 	FTC Act, 	the 	staff 	of 	the 	FTC 	has
gained 	substantial 	experience 	in 	analyzing 	the 	impact 	of 	both
private 	and 	governmental 	trade 	restraints 	and 	their 	effects 	on
consumers 	and 	competition.
These comments 	are 	the views of the 	staff 	of 	the 	Chicago
Regional 	Office 	and 	Bureau 	of 	Economics 	of 	the 	Federal 	Trade
Commission. 	They 	are 	not 	necessarily 	the 	views 	of 	the 	Commission
or 	any 	individual 	Commissioner.
2
3
See 	15 	U.S.C. 	§§ 	41-58.
15 	U.S.C. 	§ 	45.

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Mr. 	Glen 	McKay
Page 	2
The 	staff 	of 	the 	FTC 	has 	studied 	the 	deregulation 	of
trucking 	and 	the 	benefits 	resulting 	from 	an 	increased 	reliance 	on
market 	forces 	at 	both 	the 	federa1 4 and 	state 5 levels. 	In
addition, 	the 	Bureau 	of 	Economics 	of 	the 	FTC has 	pUblished 	a
report 	on 	trucking 	deregulation. 6 The 	Bureau 	of 	Economics 	has
published 	additional 	studies 	concerning 	the 	effects 	of 	regulating
See 	Comments 	of -the 	staff 	of 	the 	FTC 	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 	1983); 	Supplementary 	Comments 	of 	the
Bureaus 	of 	Competition, 	Consumer 	Protection 	and 	Economics 	of 	the
FTC 	on 	the 	Exemption 	of 	Motor 	Contract 	Carriers 	from 	Tariff
Filing 	Requirements, 	Ex 	Parte 	No. 	MC-165, 	before 	the 	Interstate
Commerce 	Commission 	(1983); 	D. 	Breen, 	Bureau 	of 	Economics, 	FTC,
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).
See 	letter 	from 	Thomas 	B. 	Carter, 	Director, 	Dallas
Regional 	Office, 	FTC, 	to 	Raymond 	A. 	Bennett, 	Director,
Transportation/Gas 	utilities 	Division, 	Railroad 	Commission 	of
Texas 	(October 	2, 	1989); 	letter 	from 	Thomas 	B. 	Carter, 	Director,
Dallas 	Regional 	Office, 	FTC, 	to 	the 	Honorable 	Hugh 	D. 	Shine,
Texas 	House 	of 	Representatives, 	concerning 	tow 	truck 	regulation
(April 	18, 	1989); 	testimony 	of James 	A. 	Langenfeld, 	Deputy
Director 	for 	Antitrust, 	Bureau 	of 	Economics, 	FTC, 	before 	the
Public 	utilities 	Commission 	of 	california, 	concerning 	the 	impact
of 	deregulation 	on 	the 	trucking 	industry 	(October 	27, 	1988):
letter 	from 	John 	Mendenhall, 	Acting 	Director, 	Cleveland 	Regional
Office, 	FTC, 	to 	the 	Honorable 	Frank Sawyer, 	Ohio 	House 	of
Representatives, 	concerning 	contract 	carrier motor 	freight 	rates
(February 	16, 	1988); 	letter 	from 	Janet 	Grady, 	Director, 	San
Francisco 	Regional 	Office, 	FTC, 	to 	the 	Honorable 	Rebecca 	Morgan,
California 	Senate, 	on 	legislation 	to 	repeal 	the 	Public 	utility
Commission's 	authority 	to 	set 	contract 	motor 	carrier 	freight
rates 	(December 	31, 	1987); 	Comments 	of 	the 	staff 	of 	the 	FTC 	to
the 	Legislative 	Audit 	Council 	of 	South 	Carolina 	on 	possible
restrictive 	or 	anticompetitive 	practices 	in 	South 	Carolina's
Public 	Service 	Commission 	statutes 	(September 	29, 	1987);
Statement 	of 	the 	staff 	of 	the 	FTC 	on 	economic 	deregulation 	of
trucking 	to 	the 	House 	and 	Senate 	Transportation 	Committees,
Washington 	State 	Legislature 	(March 	7, 	1985).
Diane 	S. 	Owen, 	Deregulation 	in 	the 	Trucking 	Industry,
FTC 	Bureau 	of 	Economics 	Staff 	Report 	(May 	1988).

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Mr. 	Glen 	McKay
Page 	3
the 	entry 	of 	competitors 	into 	other 	industries. 7 Recently, 	the
FTC 	ruled 	that 	a 	regional 	multistate 	trucking 	rate 	bureau 	vio-
lated 	the 	antitrust 	laws 	by 	fixing 	the 	rates 	of 	its 	members. 8
These 	activities 	regarding 	trucking 	regulation 	and 	competition
policy 	generally have 	provided 	the 	staff 	of 	the 	FTC with 	experi-
ence 	in 	analyzing 	the 	potential 	effects 	of 	trucking 	deregulation.
II. 	TRUCKING 	DEREGULATION
A. 	ARGUMENTS 	ADVANCED 	IN 	SUPPORT 	OF 	REGULATION
Trucking 	regulation, 	including 	legal 	restraints 	on 	motor
carrier 	rates, 	originally was 	partially 	intended 	to 	help 	protect
the 	regulated 	railroads 	from 	competition 	from 	the 	then-unregu-
lated, 	and 	expanding, 	trucking 	industry. 	It 	also 	was 	designed,
in 	part, 	to 	support 	the 	trucking 	industry 	by 	restricting 	competi-
tion 	during 	the 	depression 	of 	the 	1930's.9
In 	our 	experience, 	those 	who 	support 	continued 	rate-setting
and 	other 	regulation 	of motor 	carriers 	usually 	advance 	four 	major
arguments. 	They 	argue 	that 	regulation 	will 	prevent 	predatory
pricing, 	forestall 	destructive 	competition, 	maintain 	safety, 	and
ensure 	service 	to 	small 	communities. 	As 	discussed 	below,
however, 	a 	number 	of 	empirical 	studies 	have 	concluded 	that 	none
of 	these 	rationales 	supports 	the 	contention 	that 	continued
regulation 	of 	common 	motor 	carriers 	is 	either 	necessary 	or
desirable. 1o
7 	See,~, 	A. 	Mathios 	& R. 	Rogers, 	The 	Impact 	of 	State
Price 	and 	Entry 	Regulation 	on 	Intrastate 	Long 	Distance 	Telephone
Rates, 	FTC 	Bureau 	of 	Economics 	staff 	Report 	(November 	1988) i 	R.
Rogers, 	The 	Effect 	of 	state 	Entry 	Regulation 	on 	Retail 	Automobile
Markets, 	FTC 	Bureau 	of 	Economics 	Staff 	Report 	(January 	1986).
New England Motor 	Rate 	Bureau, 	Inc., 	FTC 	Docket 	9170, 	5
Trade 	Reg. 	Rep. 	(CCH) 	i 	22,722 	(August 	18, 	1989), 	appealed, 	No.
89-1963 	(1st 	Cir. 	argued 	March 	6, 	1990).
Nelson, 	"The 	Changing 	Economic 	Case 	for 	Surface 	Trans-
port 	Regulation," 	in 	Perspectives 	on 	Federal 	Transportation
Policy 	(James 	C. 	Miller 	III, 	ed. 	1975).
These 	arguments 	have 	been 	discussed 	and 	dismissed 	in 	a
number 	of 	studies. 	See 	generally 	weinstein 	& Gross, 	Transporta-
tion 	and 	Economic 	Development: 	The 	Case 	for 	Reform 	of 	Trucking
Regulation 	in 	Texas, 	Center 	for 	Enterprising, 	Southern 	Methodist
University 	(Feb. 	1987) i 	Breen, 	supra 	note 	4; 	Diane 	S. 	Owen, 	supra
note 	6.

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Mr. 	Glen McKay
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1. 	Predatory 	pricing
A common 	argument 	advanced 	in 	support 	of 	rate 	regulation 	is
that 	such 	regulation 	will 	prevent 	predatory 	pricing. 	The 	princi-
pal 	thrust 	of 	this 	argument 	is 	that 	larger, 	better 	financed
companies 	will 	attempt 	to 	drive 	out 	competitors 	by 	selling
trucking 	services 	below 	their 	average 	variable 	costs. 	The
surviving 	firms 	will 	then 	raise 	their 	prices 	above 	the 	competi-
tive 	level, 	eventually 	recouping 	their 	losses 	and 	increasing
their 	profits.
This 	argument 	is 	usually 	applied 	to 	industries 	with 	high
entry 	barriers 	and 	high 	sunk 	costs. 	The 	trucking 	industry
comprises 	two 	distinct 	segments. 	One 	involves 	Shipments 	of
10,000 	pounds or more 	(truckload, 	or TL, 	shipments), 	and 	the
other 	involves 	shipments 	of 	less 	than 	10,000 	pounds 	(less-than-
truckload, 	or 	LTL 	shipments). 	Truckload 	shipments 	usually 	go
from 	shipper 	to 	consignee 	without 	intermediate 	handling; 	the
truck 	itself 	is 	the 	only 	equipment 	needed. 	Because 	trucks 	are
highly 	mobile 	and 	can 	be 	transferred 	quickly, 	sunk 	costs 	are
probably minimal 	in 	the 	TL 	segment. ll Although 	LTL 	shipments
often 	are 	transported 	to 	break-bulk 	facilities 	before 	reaching
their 	destinations, 	any 	sunk 	capital 	costs 	associated 	with
warehousing 	can be 	reduced 	significantly 	by 	leasing, 	rather 	than
owning, 	terminal 	facilities.
If 	a 	predator 	tried 	to 	raise 	its 	prices 	to 	noncompetitive
levels, 	other 	firms 	should 	enter 	or 	re-enter 	the 	market, 	taking
business 	away 	from 	the 	predator 	and 	forcing 	prices 	back 	to
competitive 	levels. 	Predatory 	pricing 	is 	therefore 	unlikely 	to
succeed. 	Since 	predation 	is 	unlikely 	to 	be 	profitable 	or
successful, 	motor 	carriers 	are 	not 	likely 	to 	attempt 	it. 	In
1987, 	the 	General 	Accounting 	Office 	joined 	the 	Interstate
Commerce 	Commission, 	the 	Motor 	Carrier 	Ratemaking 	study
Commission, 	and 	the 	Department 	of 	Justice 	in 	concluding 	that
predation 	is 	unlikely 	to 	occur 	as 	a 	consequence 	of 	trucking
deregulation. 12 	The 	Supreme 	Court 	has 	stated 	that 	"predatory
T.E. 	Keeler, 	"Deregulation 	and 	Scale 	Economies 	in 	the
u.S. 	Trucking 	Industry: 	An 	Econometric 	Extension 	of 	the 	Survivor
Principle," 	32 	J. 	of 	Law 	and 	Econ. 	229, 	250 	(1989).
United 	States 	General 	Accounting 	Office, 	Trucking
RegUlation: 	Price 	Competition 	and 	Market 	Structure 	in 	the
Trucking 	Industry, 	pp. 	8-10 	(Feb. 	1987). 	The 	positions 	of 	the
ICC, 	MCRSC, 	and 	DOJ 	are 	discussed 	in 	the 	GAO 	report.
Although 	it 	has 	been 	argued 	that 	the 	LTL 	segment 	of 	the
trUCking 	industry 	has 	high 	entry 	barriers 	and 	high 	sunk 	costs,
(continued ... )
",

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Mr. 	Glen 	McKay
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pricing 	schemes 	are 	rarely 	tried, 	and 	even 	more 	rarely 	success-
ful. ,,13
For 	these 	reasons, 	predatory 	pricing 	in 	the 	trucking 	indus-
try 	appears 	to 	be 	little 	more 	than 	a 	theoretical 	possibility.14
In 	any 	event, 	firms 	that 	attempt 	to 	engage 	in 	predatory 	pricing
would 	also 	be 	subject 	to 	public 	and 	private 	antitrust 	enforcement
actions.
2. 	DESTRUCTIVE 	COMPETITION
Proponents 	of 	trucking 	regulation 	also 	argue 	that 	deregula-
tion 	of 	motor 	carriage 	rates 	will 	lead 	to 	"destructive 	competi-
tion." 	Destructive 	competition may 	occur 	in 	industries
characterized 	by 	fluctuating 	demand, 	relatively 	high 	sunk 	costs,
and 	a 	high 	ratio 	of 	fixed 	to 	total 	costs. 	These 	conditions 	are
likely 	to 	create 	excess 	capacity 	and 	considerable 	pressure 	to 	cut
prices 	when 	demand 	falls. 	If 	price 	competition 	exists, 	prices
may 	persist 	below the 	total 	cost 	of 	providing 	services 	because
the 	sunk 	nature 	of 	costs 	makes 	capacity 	adjustments 	difficult.
Firms 	facing 	such 	losses 	may, 	as 	a 	result, 	try 	to 	reduce 	costs 	by
skimping 	on 	service, 	to 	the 	detriment 	of 	customers.
Conditions 	conducive 	for 	destructive 	competition 	are 	not
likely 	to 	exist 	in 	the 	trucking 	industrY. 	Fixed 	costs 	comprise
only 	a 	small 	percentage 	of 	total 	costs, 	which 	include 	such
12 ( ••• continued)
the 	GAO 	report 	concluded 	that 	entry 	barriers 	in 	LTL 	trucking, 	the
most 	significant 	of 	which 	include 	sunk 	costs 	involved 	in
providing 	terminals, 	financial 	capital 	requirements 	for 	effective
entry, 	and 	impediments 	to 	entry 	imposed 	by 	state 	regUlation, 	are
only 	"moderate." 	at 	p. 	18; 	Diane 	S. 	Owen, 	supra 	note 	6, 	at 	13.
Matshushita 	Electrical 	Industrial 	Co. 	v. 	Zenith 	Radio
Corp., 	475 	U.S. 	574, 	at 	589-590 	(1986), 	citing 	R. 	Bork, 	The
Antitrust 	Paradox, 	149-56 	(1978); 	Areeda 	& Turner, 	"Predatory
Pricing 	and 	Related 	Practices 	Under 	Section 	2 	of 	the 	Sherman
Act," 	88 	Harv. 	L. 	Rev. 	697, 	699 	(1975); 	Easterbrook, 	"Predatory
strategies 	and 	Counterstrategies," 	48 	U. 	Chi. 	L. 	Rev. 	263, 	268
(1981); 	Koller, 	"The Myth 	of 	Predatory 	Pricing 	-- 	An 	Empirical
Study," 	4 	Antitrust 	L. 	& Econ. 	Rev. 	105 	(1971); 	McGee, 	"Predatory
Price 	Cutting: 	The 	Standard 	oil 	(N.J.) 	Case," 	1 	J. 	L. 	& Econ.
137 	(1958); 	McGee, 	"Predatory 	pricing 	Revisited," 	23 	J. 	L. 	&
Econ. 	289, 	292-94 	(1980).
For 	a 	review 	of 	the 	modern 	theoretical 	literature 	on
predatory 	pricing, 	~ J. 	Tirole, 	The 	Theory 	of 	Industrial
Organization, 	Cambridge: 	MIT 	Press 	(1988) 	chs. 	8 	& 9.

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Mr. 	Glen 	McKay
Page 	6
variable 	costs 	as 	labor 	and 	fuel 	expenses. 	Trucks 	are 	highly
mobile 	assets, 	suggesting 	that 	they 	may 	be 	transferred 	readily
and 	easily 	from 	less 	profitable 	to 	more 	profitable 	geographic
markets 	in 	response 	to 	fluctuations 	in 	demand, 	or 	sold 	or 	leased
to 	other 	operators. 	Therefore, 	destructive 	competition 	in 	the
trucking 	industry 	seems 	unlikely.'5 	.
3. 	SAFETY
Another 	argument 	that 	has 	been 	advanced 	is 	that 	deregulation
will 	have 	an 	adverse 	effect 	on 	safety 	in 	the 	trucking 	industry,
because 	carriers 	facing 	stiff 	competition 	in 	rates 	or 	service
will 	neglect 	maintenance, 	delay 	replacement 	of 	vehicles, 	and
overwork drivers. 	Although 	opponents 	of 	deregulation 	have 	cited
statistics 	showing 	an 	increase 	in 	the 	average 	age 	of 	trucks 	on
the 	road 	and 	a 	greater 	frequency 	in 	reported 	accidents 	involving
truckers, 	other 	studies 	have 	shown 	that 	safety 	has 	not 	been
compromised 	following 	deregulation. '6 	For 	example, 	a 	study 	of
truck 	safety 	in 	California 	was 	"unable 	to 	prove 	the 	hypothesis
that 	CPUC 	[California 	Public 	utilities 	Commission] 	economic
regulation 	of 	trucking 	is 	significantly 	and 	positively 	linked 	to
improved 	highway 	safety. ,,17 	In 	any 	case, 	reduced 	safety 	is 	not 	a
necessary 	consequence 	of 	price 	and 	entry 	deregulation; 	nor 	do
regulated 	motor 	carriage 	rates 	ensure 	that 	profits 	will 	be 	spent
to 	ensure 	safe 	truck 	operations. 	Directly 	addressing 	a 	state's
legitimate 	safety 	concerns, 	through vigorous 	enforcement 	of
safety 	regulations, 	may 	be 	more 	effective 	in 	promoting 	safety
than 	indirectly 	addressing 	those 	concerns 	through 	economic
regulation. 18
4. 	PRESERVING 	SERVICE 	TO 	SMALL 	COMMUNITIES
Some 	proponents 	of 	trucking 	regulation 	have 	argued 	that
deregulation 	will 	result 	in 	loss 	of 	service 	to 	smaller 	communi-
ties, 	because 	motor 	carriers 	will 	find 	it 	unprofitable 	to 	serve
See 	A. 	Kahn 	III, 	2 	Economics 	of 	Regulation 	178 	(1971),
in 	which 	the 	author 	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. 1I
16
Gross,
Diane 	S. 	Owen, 	supra 	note 	6, 	at 	18-21; 	Weinstein 	&
supra 	note 	la, 	at 	50-51.
17 California 	Public 	utilities 	Commission 	& California
Highway 	Patrol, 	AB 	2678 	Final 	Report 	on 	Truck 	safety, 	Joint
Legislative 	Report, 	3 	(Nov. 	1987).
18 See 	also 	infra 	note 	61.

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Mr. 	Glen 	McKay
Page 	7
small 	markets 	unless 	they 	are 	guaranteed 	a 	fair 	return 	on 	invest-
ment. 	studies 	of 	the 	effect 	of 	trucking 	deregulation 	at 	the
federal 	and 	state 	levels, 	however, 	have 	not 	revealed 	any
significant 	deterioration 	in 	service 	to 	small 	communities.
A series 	of 	surveys 	conducted 	between 	1980 	and 	1985 	by 	the
u.s. 	Department 	of Transportation 	found 	that 	a 	large 	majority 	of
shippers 	in 	rural 	areas 	reported 	either 	no 	change 	or 	an 	improve-
ment 	in 	the 	quality 	of 	service 	after 	partial 	deregulation 	of
interstate 	trucking 	by 	the 	Motor 	Carrier 	Act 	of 	1980. 19 These
findings 	are 	consistent 	with 	those 	of 	a 	1982 	Interstate 	Commerce
Commission 	study, 	which 	found 	that 	federal 	deregulation 	had
resulted 	in 	lower 	prices, 	less 	damage, 	and 	often more 	service
options 	for 	shippers 	in 	small 	communities.~ 	Similarly, 	in 	a
survey 	following 	deregulation 	of 	intrastate 	trucking 	in 	Florida,
65 	per 	cent 	of 	respondents 	in 	small 	communities 	expressed 	a
preference 	for 	deregulation, 	with 	30 	per 	cent 	expressing 	no
preference. 21 A study 	of 	the 	Texas 	trucking 	market 	concluded
that 	small 	Texas 	communities 	would 	not 	lose 	service 	in 	a 	deregu-
lated 	environment because 	common 	carriers 	have 	found 	such 	service
to 	be 	profitable.~
B. 	BENEFITS 	OF 	DEREGULATION
A number 	of 	states 	have 	already 	deregulated 	intrastate 	rates.
as 	well 	as 	eased 	entry 	restrictions 	into 	the 	intrastate 	trucking
industry. 	The 	experiences 	of 	these 	states 	attest 	to 	the 	benefits
to 	consumers 	and 	competition 	produced 	by trucking 	deregUlation.
Pub. 	L. 	No. 	96-296, 	94 	stat. 	793 	(1980). 	See 	U.S.
Dept. 	Transp., 	Third 	Follow-Up 	Study 	of 	Shipper-Receiver Mode
Choice 	in 	Selected 	Rural 	Communities, 	1982-3 	(1986); 	U.S. 	Dept.
Transp., 	Fourth 	Follow-Up 	Study 	of 	Shipper-Receiver Mode 	Choice
in 	Selected 	Rural 	Communities, 	1984-5 	(1986).
Interstate 	Commerce 	Corom., 	Small 	Community 	service
Study 	(1982).
Beilock 	& Freeman, 	"Motor 	Carrier 	DeregUlation 	in
Florida," 	14 	Growth 	and 	Change 	31-41 	(1983).
Pustay, 	"Interstate 	Motor 	carrier Regulation 	in 	Texas,"
The 	Logistics 	and 	Transportation 	Review, 	vol. 	19, 	no. 	2 	(1984),
quoted 	in 	Weinstein 	& Gross, 	supra 	note 	10, 	at 	49. 	Noting
individual 	entry 	petitions 	for 	common 	carrier 	operating
authority, 	as 	well 	as 	a 	resale 	market 	for 	existing 	authority, 	the
study 	found 	that 	these 	indications 	of 	willingness 	to 	serve 	small
communities 	suggested 	that 	carriers 	would 	provide 	the 	service
voluntarily, 	"even 	in 	the 	absence 	of 	regulation."

23
24
25
26
27
28
Mr. 	Glen 	McKay
Page"8
california, 	for 	example, 	experimented with 	partial 	economic
deregulation 	of 	trucking 	from 	1980 	to 	1986. 	During 	that 	time
entry was 	virtually 	free, 	and 	rates, 	though 	regulated, 	were
flexible. 23 The 	result 	was 	lower 	rates 	with 	no 	loss 	in 	service. 24
A stUdy 	of 	trucking 	in New Jersey 	concluded 	that 	deregula-
tion worked 	well 	in 	that 	state. 25 According 	to 	a 	stUdy 	by w.
Bruce 	Allen, 	shippers 	were 	satisfied with 	the 	available 	service,
rates 	were 	about 	ten 	percent 	lower 	than 	they 	would 	have 	been
under 	regulation, 	and 	intrastate 	carriers 	have 	prospered. 26
Florida 	trucking 	was 	deregulated 	so 	quickly 	that 	truckers
and 	shippers 	had 	no 	opportunity 	to 	prepare 	for 	it. 	Nonetheless,
according 	to 	one 	study, 	a 	year 	after 	deregulation, 	88 	percent 	of
shippers, 	as 	well 	as 	49 	percent 	of 	truckers, 	supported 	it. 	Most
shippers 	thought 	that 	service 	levels 	remained 	constant 	and 	that
rate 	fluctuations 	had 	posed 	no 	difficulties. 	Only 	a 	few 	shippers
converted 	to 	private 	carriage;V many 	more 	such 	shippers' 	conver-
sions 	might 	have 	been 	expected 	if 	"destructive 	competition" 	had
resulted 	in 	a 	large 	reduction 	in 	the 	number 	of 	truckers. 28
Likewise, 	a 	1982 	U.S. 	Department 	of 	Transportation
carriers 	were 	permitted 	to 	change 	rates, 	after 	a 	short
waiting 	period, 	without 	having 	to 	show 	the 	change 	was 	cost-
justified. 	There 	was 	no 	waiting 	period 	to 	match 	a 	competitor's
rate.
Simmerson, 	"Analysis 	of 	The 	Impact 	of 	Deregulation 	of
the 	General 	Freight 	Trucking 	Industry," 	Investigation 	No. 	84-05-
048, 	California 	Public 	Utilities 	Commission, 	20-21 	(Aug. 	10,
1984) 	(based 	upon 	survey 	by 	CPUC 	of 	239 	general 	freight 	carriers
and 	survey 	by 	California 	State 	University, 	Hayward, 	Institute 	of
Research 	& Business 	Development 	of 	596 	shippers.)
Allen, 	Lonergon 	& Plane, 	Examination 	of 	the 	Unregulated
Trucking 	Experience 	in 	New Jersey, 	U.S. 	Dept. 	of 	Transportation
(July 	1979).
Allen, 	Statement 	Before 	the 	National 	Commission 	for 	the
Review 	of 	Anti-Trust 	Laws 	and 	Procedures 	(January 	22, 	1979).
Private 	carriage 	refers 	to 	those 	situations 	where 	the
motor 	carrier 	is 	owned 	by 	the 	shipper.
Freeman, 	"A Survey 	of 	Motor 	Carrier 	Deregulation 	in
Florida: 	One 	Year's 	Experience," 	ICC 	Practitioners 	Journal, 	at
51 	(Nov.-Dec. 	1982).

29
30
31
32
~
Mr. 	Glen 	McKay
Page 	9
study~ 	found 	that 	90 	percent 	of 	Florida 	shippers 	believed 	that
post-deregulation 	service 	was 	at 	least 	as 	good 	as 	service 	before
deregulation 	and 	30 	percent 	reported 	improvements. 	A majority 	of
these 	shippers 	(58 	percent) 	perceived 	that 	deregulation 	had 	held
down 	rates. 	Finally, 	economists 	Blair, 	Kaserman, 	and 	McClave
found 	that 	Florida's 	deregulation 	of 	intrastate 	trucking 	led 	to 	a
15 	percent 	average 	reduction 	in motor 	carrier 	rates.~
The 	experience 	of 	other 	states 	is 	consistent with 	that 	of
California, 	New Jersey 	and 	Florida. 	For 	example, 	in 	Wisconsin,
67 	per 	cent 	of 	shippers 	were 	satisfied 	with 	deregulation 	and 	only
six 	per 	cent 	were 	dissatisfied. 	Seventy-three 	per 	cent 	said 	that
rate 	information 	was 	as 	readily 	available 	after 	deregulation 	as
before. 	Carriers 	were 	evenly 	divided 	on 	the 	question 	of
deregulation. 	Those 	with 	increased 	profits 	tended 	to 	favor
deregulation, 	while 	some 	of 	those 	opposing 	deregulation 	were
concerned 	about 	the 	loss 	of 	the 	asset 	value 	of 	their 	certificates
of 	convenience 	and 	necess i ty •31
In Maryland, 	intrastate 	household 	goods 	movers 	were 	not
regulated. 	A study 	conducted 	in 	that 	state 	in 	1973-1974 	revealed
that 	the 	then-regulated 	interstate 	household 	goods 	carriers
charged 	27 	per 	cent 	to 	67 	per 	cent 	more 	than 	unregulated 	intra-
state 	carriers 	for 	comparable 	moves.~
Oregon 	deregulated 	the 	shipping 	of 	certain 	building
materials 	in 	1980. 	The 	results 	of 	this 	action 	were 	examined 	in
two 	separate 	surveys 	by 	the 	Legislative 	Research 	Office 	of the
Oregon 	Legislature.~ 	All 	parties 	surveyed 	agreed 	that
deregulation 	increased 	the 	number 	of 	carriers 	in 	the 	market.
According 	to 	one 	survey, 	almost 	all 	shippers 	and 	most 	of 	the
truckers 	with 	prior 	authority 	to 	carry 	these 	products 	believed
statement 	of 	Matthew V. 	Scocozza, 	Assistant 	Secretary
for 	Policy 	and 	International 	Affairs, 	u.s. 	Department 	of
Transportation, 	Before 	the 	Subcommittee 	on 	Surface
Transportation, 	u.s. 	House 	of 	Representatives 	(June 	20, 	1984).
Blair, 	Kaserman 	& McClave, 	"Motor 	Carrier 	Deregulation:
The 	Florida 	Experiment," 	68 	Rev. 	Econ. 	& stat. 	159 	(1986).
Wisconsin 	Office 	of 	the 	Commissioner 	of 	Transportation,
Deregulation 	of 	Wisconsin 	Motor 	Carriers 	(July 	1983).
Breen, 	"Regulation 	and 	Household 	Moving 	Costs,"
Regulation, 	53 	(Sept.-Oct. 	1978).
Unpublished 	surveys 	conducted 	by 	the 	Oregon 	state
Legislature's 	Legislative 	Research 	Office 	(1984).

~
Mr. 	Glen 	McKay
Page 	10
that 	trucking 	rates 	had 	decreased. 	None 	of 	the 	groups 	surveyed
believed 	that 	general 	rate 	levels 	had 	increased 	as 	a 	result 	of
deregulation.
The 	deregulation 	of 	intrastate 	trucking 	appears 	not 	to 	have
had 	the 	adverse 	impact 	on 	competition 	or 	consumers 	that 	had 	been
predicted 	by many 	critics 	of 	deregulation. 	In 	fact, 	deregula-
tion 	has 	been 	beneficial 	both 	to 	the 	industry 	and 	to 	consumers.~
In 	light 	of 	these 	experiences, 	you 	may wish 	to 	consider whether
Tennessee 	consumers 	might 	benefit 	from 	the 	adoption 	of 	similar
measures.
III. 	TENNESSEE 	REGULATION OF MOTOR 	CARRIERS
The 	Tennessee 	Public 	Service 	commission 	("PSC") 	is 	granted
the 	power 	and 	authority 	to 	promote 	and 	conserve 	the 	pUblic
interest 	and 	convenience 	and 	is 	charged 	with 	the 	duty 	to 	regulate
and 	supervise 	motor 	vehicle 	transportation 	over 	the 	state
highways.~ 	The 	statutory 	scheme 	and 	PSC 	regulations 	may 	harm
consumers, 	however, 	by 	restricting 	the 	entry 	of 	firms 	into 	motor
carrier 	transportation, 	by 	providing 	a 	mechanism 	through 	which
existing 	carriers 	can 	impede 	the 	entry 	of 	new 	carriers, 	and 	by
restraining 	rate 	flexibility.
A. 	MARKET 	ENTRY 	RESTRICTIONS
1. 	MOTOR COMMON CARRIERS
A motor 	carrier 	is 	required 	to 	obtain 	a 	certificate 	of
pUblic 	convenience 	and 	necessity 	to 	operate 	as 	a 	common 	motor
carrier 	in 	Tennessee. 	The 	statute 	enumerates 	various 	factors
that 	the 	PSC 	must 	consider 	in 	determining 	whether 	a 	certificate
A recent 	study 	of 	federal 	deregulation 	of 	surface
freight 	transportation 	(trucking 	and 	railroads) 	estimated 	that
deregulation 	benefits 	shippers, 	and 	ultimately 	consumers, 	approx-
imately 	$20 	billion 	annually 	through 	reduced 	rates 	and 	improved
service. 	The 	net 	welfare 	gain 	to 	the 	economy 	as 	a 	whole 	is
somewhat 	less 	- 	$16 	billion 	annually 	- 	because 	deregulation
reduces 	the 	profits 	of 	some 	carriers 	and 	reduces 	the 	wages 	of
some 	workers. 	Still, 	the 	overwhelming 	conclusion 	is 	that 	deregu-
lation 	provides 	substantial, 	ongoing 	benefits. 	See, 	Winston,
corsi, 	Grimm, 	and 	Evans, 	The 	Economic 	Effects 	of 	Surface 	Freight
Deregulation, 	Washington: 	The 	Brookings 	Institution 	(1990).
35 Tenn. 	Code 	Ann. 	§ 	65-15-101.

Mr. 	Glen 	McKay
Page 	11
should 	be 	issued.~ 	The 	statute 	also 	provides 	that 	a 	hearing 	be
held 	prior 	to 	issuing 	the 	certificate, 	during 	which 	interested
parties 	may 	provide 	testimony 	for 	or 	against 	issuing 	the 	certifi-
cate. 	carriers 	already 	operating 	in 	the 	territory 	proposed 	to 	be
served 	by 	the 	applicant 	are 	designated 	by 	statute 	as 	interested
parties.
The 	provisions 	relating 	to 	certificates 	of 	pUblic 	necessity
and 	convenience may 	impede 	competitive 	entry 	in 	two 	ways. 	First,
the 	statutory 	factors 	that 	the 	PSC 	is 	required 	to 	consider may 	be
overly 	broad 	and 	therefore 	may make 	obtaining 	certificates 	unduly
burdensome 	to 	potential 	new 	entrants. 	For 	example, 	the 	statute
requires 	that 	the 	PSC 	consider 	the 	public 	demand 	or 	need 	for 	the
proposed 	service 	and 	the 	effect 	the 	proposed 	service 	may 	have 	on
existing 	transportation 	service. 	In 	an 	unregulated 	market,
public 	demand 	or 	need 	for 	a 	particular 	service 	is 	shown 	through
consumers' 	willingness 	to 	pay 	for 	the 	service, 	and 	producers 	are
Tenn. 	Code 	Ann. 	§ 	65-15-107. 	certificates 	of
corivenience 	and 	necessity 	-- 	Interstate 	permits. 	No 	motor
carrier 	can 	lawfully 	"operate 	or 	furnish 	service 	as 	a 	common
carrier 	between 	points 	within 	this 	state 	without" ... 	a
certificate 	"declaring 	that 	pUblic 	convenience 	and 	necessity 	will
be 	promoted 	by 	such 	operation." 	In 	determining 	whether
certificates 	should 	be 	issued, 	the 	PSC 	is 	required 	to 	consider
eigh~ factors:
[1] 	"the 	transportation 	service 	being 	furnished 	by 	any
railroad, 	street 	railroad 	or motor 	carrier 	on 	the 	route 	or
in 	the 	territory 	in 	which 	the 	applicant 	proposes 	to 	operate,
[2] 	the 	service 	to 	be 	rendered 	and/or 	capable 	of 	being
rendered 	by 	the 	applicant,
[3] 	the 	financial 	condition 	and 	character 	of 	the 	applicant,
[4] 	the 	character 	of 	the 	highways 	over 	which 	said 	applicant
proposes 	to 	operate 	and 	the 	effect 	thereon 	and 	upon 	the
traveling 	pUblic 	using 	said 	highways,
[5] 	the 	pUblic 	demand 	or 	need 	for 	the 	service 	proposed,
[6] 	the 	likelihood 	of 	the 	proposed 	service 	being 	permanent
and 	continuous,
[7] 	the 	effect which 	such 	proposed 	service 	may 	have 	upon
other 	transportation 	service 	being 	rendered,
[8] 	and 	all 	other 	pertinent 	facts."

37
38
Mr. 	Glen 	McKay
Page 	12
rewarded 	with 	higher 	sales 	and 	greater 	profits 	when 	they 	meet
these 	needs 	efficiently. 	The 	statutory 	scheme 	requires 	the 	PSC
to 	substitute 	its 	judgment 	on 	public 	demand 	or 	need 	for 	a
decision 	that 	can 	be made 	through 	the 	competitive 	marketplace. 37
Likewise, 	the 	statute 	requires 	that 	the 	PSC 	substitute 	its
jUdgment 	for 	that 	of 	the 	marketplace 	with 	respect 	to 	which
service 	or 	bundle 	of 	services 	consumers 	wish 	to 	purchase.
Relaxing 	these 	provisions would 	likely make 	the 	market 	for
transportation 	services 	more 	responsive 	to 	consumer 	demands 	and
enhance 	consumer 	choice.~
Second, 	the 	statute may 	create 	a 	mechanism 	through 	which
existing 	carriers 	can 	impede 	the 	entry 	of 	competition 	into 	the
market 	for 	transportation 	services. 	The 	statute 	requires 	that
the 	PSC 	hold 	a 	hearing 	before 	issuing 	certificates 	of 	convenience
and 	necessity.39 	By 	definition 	existing 	carriers 	serving 	a
territory 	are 	interested 	parties 	who 	may 	offer 	testimony 	for 	or
against 	issuing 	a 	certificate 	to 	a 	proposed 	carrier. 	Existing
carriers 	have 	incentives 	to 	hamper 	the 	entry 	of 	new 	suppliers 	of
transportation 	services 	into 	the 	markets 	that 	they 	serve. 	These
carriers 	could 	use 	the 	hearing 	process 	to 	raise 	the 	costs 	that
potential 	new 	entrants 	face, 	increase 	their 	own 	profits, 	and
Under 	rare 	circumstances, 	which 	appear 	unlikely 	to
arise 	in 	the 	trucking 	industry, 	unrestricted 	entry 	could 	reduce
welfare. 	For 	a 	discussion 	of 	when 	these 	conditions 	can 	arise
(and 	a 	discussion 	of 	why 	entry 	restrictions 	are 	rarely
justifiable) 	see 	Baumol, 	Panzar, 	and 	Willig, 	Contestable 	Markets
and 	the 	Theory 	of 	Industry 	structure, 	New 	York: 	Harcourt, 	Brace
Jovanovich, 	Inc. 	(1982), 	pp. 	221-224.
Federal 	trucking 	regulation 	has 	been 	partially 	relaxed.
The 	Interstate 	Commerce 	Commission 	("ICC") 	is 	required 	to 	issue
an 	interstate 	motor 	common 	carrier 	certificate 	if 	the 	applicant
is 	able 	to 	provide 	the 	service, 	to 	comply with 	ICC 	law, 	and, 	on
the 	basis 	of 	evidence 	offered 	in 	support 	of 	issuing 	the
certificate, 	if 	the 	proposed 	service 	would 	serve 	a 	useful 	public
purpose, 	unless 	evidence 	offered 	against 	issuance 	demonstrates
that 	issuing 	the 	certificate 	is 	inconsistent 	with 	the 	pUblic
convenience 	and 	necessity. 	49 	U.S.C. 	§ 	10922 	(b) 	(1). 	Thus, 	the
burden 	of 	proof 	is 	placed 	upon 	opponents 	of 	a 	proposed 	service.
In 	fact, 	federal 	law 	prohibits 	the 	ICC 	from 	finding 	"the
diversion 	of 	revenue 	or 	traffic 	from 	an 	existing 	carrier 	to 	be 	in
and 	of 	itself 	inconsistent with 	the 	pUblic 	convenience 	and
necessity." 	49 	U.S.C. 	§ 	10922 	(b) 	(2). 	We 	understand 	that 	in
practice 	federal 	certificates 	are 	rarely 	denied.
39 Tenn. 	Code 	Ann. 	§ 	65-15-107.

Mr. 	Glen 	McKay
Page 	13
reduce 	industry 	output 	and 	consumer welfare.~ 	In 	some 	cases,
incumbent 	firms 	could 	potentially 	block 	entry 	altogether. 	The
potential 	use 	of 	the 	regulatory 	scheme 	to 	impede 	entry 	by 	new
competitors 	would 	likely 	be 	reduced 	if 	protesting 	carriers 	were
required 	to 	demonstrate 	that 	issuing 	a 	certificate 	to 	a 	new
entrant would 	not 	benefit 	the 	pUblic. 41
2. 	CONTRACT HAULERS
By 	statute, 	Tennessee 	requires 	that 	contract 	haulers 	obtain
permits. 42 Unlike 	common 	carriers 	that 	provide 	service 	to 	all
potential 	shippers 	in 	the 	territory 	served, 	contract 	haulers 	ship
goods 	under 	a~reements with 	specific 	shippers 	to 	particular
destinations. 	Shippers 	may 	benefit 	from 	being 	able 	to 	reach
agreements 	with 	contract 	haulers 	to 	provide 	services 	tailored 	to
shippers' 	particular 	needs 	rather 	than 	having 	to 	rely 	on 	the 	more
generalized 	services 	offered 	by 	common 	carriers. 	Reducing 	any
difficulties 	associated 	with 	obtaining 	contract 	hauler 	permits
would 	likely 	increase 	the 	opportunities 	available 	to 	consumers 	of
transportation 	services 	to 	choose 	the 	particular 	combinations 	of
price 	and 	quality 	of 	service 	that 	best 	serve 	their 	needs.
Tennessee's 	requirements 	for 	contract 	hauler 	permits 	may
have 	the 	anticompetitive 	potential 	of 	providing 	common 	carriers
40 See 	Salop 	and Scheffman,
Amer. 	Econ. 	Rev. 	267 	(1983). "Raising 	Rivals' 	costs," 	73
41 Our 	analysis 	applies 	as 	well 	to 	permits 	required 	for
interstate 	transportation. 	See 	Tenn. 	Code 	Ann. 	§ 	65-15-107 	(b)
(requiring 	interstate 	permits 	and 	hearings 	on 	the 	issuance 	of
permits). 	It 	should be 	noted 	that 	the 	factors 	that 	the 	PSC 	is
required 	to 	consider 	in 	deciding 	whether 	to 	issue 	interstate
permits 	are 	less 	inclusive 	than 	the 	factors 	enumerated 	for
intrastate 	certificate 	determinations. 	This 	difference 	may make
it 	more 	difficult 	to 	obtain 	intrastate 	permits 	than 	to 	obtain
interstate 	certificates.
In 	addition, 	the 	current 	regulatory 	scheme 	may 	provide
interstate 	trucking 	firms 	located 	in 	other 	states 	with 	a
competitive 	advantage 	over 	interstate 	truckers 	located 	in
Tennessee. 	If 	regulatory 	burdens 	are 	less 	in 	other 	states, 	out-
of-state 	firms 	may 	choose 	to 	locate 	break-bulk 	facilities 	or
terminals 	elsewhere, 	or may 	decide 	not 	to 	offer 	services 	in
Tennessee.
42 Tenn. 	Code Ann. 	§ 	65-15-108.
43 See, 	~, 	Tenn. 	Code 	Ann. 	§ 	65-15-102 	(a)
of 	contract 	hauler) . (definition

Mr. 	Glen 	McKay
Page 	14
with 	the 	means 	to 	inhibit 	the 	entry 	of 	contract 	haulers 	into 	the
marketplace. 	In 	determining 	whether 	to 	issue 	a 	contract 	hauler
permit, 	the 	PSC 	is 	required 	to 	consider, 	among 	other 	things,
transportation 	services 	being 	offered 	by 	common 	motor 	and 	rail
carriers 	and 	other 	contract 	haulers 	in 	the 	territory 	proposed 	to
be 	served. 44 The 	PSC may 	refuse 	to 	issue 	a 	contract 	carrier
permit 	if 	it 	appears 	that 	the 	proposed 	operation 	of 	the 	applying
contract 	carrier will 	impair 	the 	efficient 	public 	service 	of 	a
common 	carrier 	operating 	in 	the 	same 	territory.45 	Existing
common 	carriers 	have 	incentives, 	irrespective 	of 	pUblic 	benefit,
to 	restrict 	the 	entry 	of 	possible 	competitors, 	including contract
haulers. 	If 	too 	much 	weight 	is 	given 	to 	the 	concerns 	of 	common
carriers, 	as 	opposed 	to 	the 	shippers 	that 	they 	serve, 	entry 	may
be 	impeded. 	Some 	shippers 	may 	find 	that 	contract 	carrier 	service
is 	the 	most 	efficient 	method 	of 	shipping 	their 	goods. 	These
efficiencies, 	which 	may 	lead 	to 	lower 	shipping 	rates 	and,
ultimately, 	lower 	prices 	to 	consumers~ may 	not 	be 	realized 	if
entry 	by 	contract 	haulers 	is 	impeded. 6
3. 	REGULATION OF 	SALES, 	TRANSFERS 	AND 	DISCONTINUANCE 	OR
ALTERATION OF 	SERVICE
Tennessee 	regulates 	the 	sale 	and 	transfer 	of 	intrastate
certificates 	of 	pUblic 	convenience 	and 	necessity 	and 	interstate
permits. 47 Under 	the 	PSC's 	regulations, 	the 	sale 	or 	transfer 	of
a 	certificate 	or 	permit 	is 	not 	permitted 	without 	the 	approval 	of
44
45
Tenn. 	Code 	Ann. 	§ 	65-15-108 	(b).
46 By 	contrast, 	the 	ICC 	will 	issue 	a 	federal 	motor
contract 	carrier 	permit 	if 	it 	finds 	that 	the 	proposed 	carrier 	is
able 	to 	provide 	the 	proposed 	service, 	comply 	with 	applicable 	law
and 	the 	proposed 	service 	is 	or 	will 	be 	consistent 	with 	the 	pUblic
interest. 	49 	U.S.C. 	§ 	10923 	(a). 	The 	ICC 	is 	required 	to
consider 	the 	nature 	of 	the 	proposed 	transportation 	service, 	the
effect 	that 	granting 	the 	permit 	would 	have 	on 	protesting 	carriers
and 	whether 	that 	effect 	would 	be 	contrary 	to 	the 	pUblic 	interest,
the 	effect 	that 	denying 	the 	permit 	would 	have 	on 	the 	applicant,
the 	shippers, 	or 	both, 	and 	the 	changing 	needs 	of 	shippers. 	49
U.S.C. 	§ 	10923 	(b) 	(3). 	In 	addition, 	federal 	law 	limits 	the
carriers 	who 	may 	protest 	a 	permit 	application. 	49 	U.S.C. 	§ 	10923
(b) (4). 	The 	factors 	enumerated 	for 	consideration 	in 	federal 	law
recognize 	that 	contract 	carrier 	service 	may 	provide 	a 	useful
method 	for 	shippers 	to 	meet 	their 	transportation 	needs.
47 Tenn. 	Code 	Ann. 	§ 	65-15-107 	(d).

Mr. 	Glen 	McKay
Page 	15
the 	PSC. 48 The 	selling 	carrier 	is 	required 	to 	notify 	all
interested 	or 	affected 	motor 	carriers 	who 	may 	file 	protests 	or
objections 	to 	the 	proposed 	sale. 49 The 	PSC 	will 	not 	act 	on 	a
proposed 	sale 	until 	a 	petition 	has 	been 	on 	file 	at 	least 	twenty
days.50
We 	agree 	that 	the 	PSC, 	prior 	to 	approving 	the 	sale 	or the
transfer 	of 	an 	existing 	certificate 	or 	permit, 	has 	a 	legitimate
interest 	in 	considering whether 	the 	proposed 	transaction 	might
raise 	concerns, 	such 	as 	permitting 	the 	purchaser 	to 	exercise
anticompetitive 	market 	power 	or 	compromising 	safety. 	Nonethe-
less, 	the 	breadth 	of 	these 	requirements 	may 	unnecessarily
increase 	the 	costs 	associated 	with 	sales 	and 	transfers 	and may
potentially 	assist 	competitors 	in 	obstructing 	efficient 	sales 	or
transfers. 	The 	resulting 	costs 	may 	make 	the 	entry 	of 	new 	compet-
itors 	into 	the 	market 	and 	the 	exit 	of 	inefficient 	firms 	from 	the
market 	more 	difficult. 	Both 	factors 	may 	contribute 	to
inefficiencies 	that 	could 	be 	reflected 	in 	higher 	prices 	and 	lower
quality 	and 	variety 	of 	service 	than 	would 	be 	found 	absent 	the
requirements.
Tennessee 	common 	carriers 	also 	need 	approval 	to 	discontinue
or 	alter 	service. 51 The 	regulations 	provide 	that 	a 	carrier 	can
alter 	or 	discontinue 	its 	service 	only 	after 	providing 	notice 	to
interested 	parties 	thirty 	days 	in 	advance. 	Furthermore, 	any
affected 	party 	can 	protest 	the 	change 	and 	request 	that 	the 	PSC
hold-a 	hearing 	prior 	to 	approving 	the 	discontinuance 	or 	alter-
ation. 52 These 	rules 	may 	benefit 	shippers 	by 	providing 	them 	a
period 	of 	time 	to 	locate 	alternative 	shipping 	arrangements 	after
a 	carrier 	chooses 	to 	discontinue 	or 	to 	alter 	service.~ 	These
rules 	also 	may 	impose 	substantial 	costs, 	however, 	by 	imposing
potentially 	lengthy 	delays 	on 	existing 	carriers 	wishing 	to 	adjust
to 	changing 	market 	conditions 	by 	discontinuing 	unprofitable
48
49
50
Tenn. 	Compo 	R. 	& Regs. 	tit. 	1220, 	ch. 	2-1-.05.
51
~
Tenn. 	Code 	Ann. 	§ 	65-15-112, 	Tenn. 	Compo 	R. 	& Regs.
tit. 	1220, 	ch. 	2-1-.08.
52
Note, 	however, 	that 	the 	ease 	with 	which 	firms 	can
physically 	enter 	and 	exit 	particular 	trucking 	routes 	suggests
that, 	over 	time, 	normal 	market 	forces 	(absent 	regulatory 	barri-
ers) 	would 	be 	likely 	to 	provide, alternatives 	to 	shippers.

Mr. 	Glen 	McKay
Page 	16
service 	or 	modifying 	service 	offerings 	to 	increase 	profits. 	You
may 	wish 	to 	consider whether, 	on 	balance, 	these 	rules 	impose 	net
costs 	by 	diminishing 	the 	market's 	responsiveness 	to 	changing
consumer 	demands 	and 	needs 	for 	transportation 	services.
B. 	RATE 	REGULATION
The 	motor 	carrier 	statutes 	prohibit 	unjust 	and 	unreasonable
freight 	rates 	and 	authorize 	the 	PSC 	to 	set 	rates.~ 	Rates 	may 	be
filed 	with 	the 	PSC 	either 	collectively 	throu~h a 	ratemaking
bureau 	or 	independently 	by 	individual 	firms. 	The 	PSC 	has
promulgated 	rules 	governing 	the 	filing 	of 	rate 	changes. 56 Rate
increases 	and 	the 	filing 	of 	rates 	lower 	than 	those 	of 	competitors
must 	be 	justified 	to 	the 	PSC 	and 	are 	subject 	to 	competitor 	and
shipper 	objections.
The 	PSC's 	rules 	require 	written, 	pUblic 	notice 	of 	tariff
schedules 	and 	of 	changes 	in 	rates. 57 Public 	disclosure 	of 	a
proposed 	rate 	increase 	might 	enhance 	the 	likelihood 	that 	firms
will 	set 	rates 	at 	anticompetitive 	levels 	by, 	for 	example, 	facili-
tating 	tacit 	agreement 	to 	follow 	competing 	firms' 	rate
increases.~ 	This 	may 	be 	more 	likely 	on 	routes 	which 	are 	served
by 	only 	a 	few 	firms, 	and 	may 	be 	further 	encouraged 	by 	provisions
which 	permit 	trucking 	firms 	to 	file 	r~tes collectively.
The 	filing 	of 	rates 	that 	are 	lower 	than 	those 	of 	competi-
tors 59 must 	be 	accompanied 	by 	(1) 	a 	document 	demonstrating 	that
54 Tenn. 	Code 	Ann. 	§ 	65-15-119.
55
59
Tenn. 	Camp. 	R. 	& Regs. 	tit. 	1220, 	ch. 	2-1-.11. 	We 	note
that, 	under 	some 	circumstances, 	collective 	ratemaking 	may 	raise
antitrust 	concerns. 	See 	New 	England 	Motor 	Rate 	Bureau, 	Inc.,
supra 	note 	8.
56 Tenn. 	Compo 	R. 	& Regs. 	tit. 	1220, 	ch. 	2-1-.12.
57 Tenn. 	Camp. 	R. 	& Regs. 	tit. 	1220, 	ch. 	2-1-.09, 	and 	.12.
58 See 	Posner, 	Antitrust 	Law: 	An 	Economic 	Perspective,
Chicago: 	University 	of 	Chicago 	Press 	(1976) , 	pp. 	135-147.
Tenn. 	Compo 	R. 	& Regs. 	tit. 	1220, 	ch. 	2-1-.12. 	The
filing 	of 	rate 	reductions 	which 	are 	not 	lower 	than 	the 	rates 	of 	a
competitor 	are 	not 	SUbject 	to 	this 	provision. 	Such 	rates 	require
only 	fifteen 	days 	notice. 	Rates 	which 	meet 	but are 	not 	lower
than 	the 	rates 	of 	a 	competitor may 	become 	effective 	on 	one 	day's
notice.

61
Mr. 	Glen 	McKay
Page 	17
the 	rate 	is 	compensatory;~ (2) 	a 	statement 	by 	the 	issuing 	offi-
cer 	that 	the 	rate 	will 	be 	applied 	in 	a 	non-discriminatory manner;
and 	(3) 	a 	statement 	by 	the 	issuing 	officer 	assessing 	whether 	the
proposed 	rate 	will 	diminish 	the 	carrier's 	ability 	to 	comply 	with
Federal 	Motor 	Carrier Safety 	Program Standards. 51
This 	system may 	reduce 	competition 	by 	discouraging 	competi-
tive 	pricing 	because 	carriers 	seeking 	to 	lower 	prices 	must
justify 	those 	prices 	in 	public 	and 	in 	advance, 	thereby 	potential-
ly 	dissipating 	some 	of 	the 	profits 	that 	they 	might 	otherwise 	have
obtained. 	Similarly, 	potential 	new 	entrants, 	who 	may 	seek 	to
offer 	lower 	rates 	than 	existing 	carriers, 	may 	be 	deterred 	from
doing 	so.
The 	PSC's 	rules 	do 	not 	appear 	to 	require 	that 	the 	PSC 	itself
set motor 	carrier 	rates. 	The 	rules 	appear 	to 	provide 	private
firms 	some 	pricing 	discretion. 	These 	rules, 	however, 	appear
likely 	to 	inhibit 	pricing 	flexibility 	because 	they tend 	to 	delay
price 	changes 	and 	to 	increase 	the 	costs 	of 	implementing 	them. 	As
a 	result, 	procompetitive 	pricing 	may 	be 	discouraged, 	to 	the
ultimate 	detriment 	of 	Tennessee 	consumers.
IV. 	CONCLUSION
The 	trucking 	industry 	has 	been 	partially 	deregulated 	at 	both
the 	federal 	and 	state 	levels. 	Deregulation 	appears 	to 	have 	.,
brought 	lower 	prices 	and 	higher 	quality 	service 	to 	shippers.
Arguments 	against 	deregulation 	appear 	to 	have 	been 	largely
unfounded. 	In 	particular, 	relaxing 	regUlations 	that 	impede
market 	entry 	and 	that 	limit 	rate 	flexibility 	appear 	to 	have 	been
beneficial 	to 	consumers 	and 	to 	competition. 	The 	connection
between 	safety 	and 	economic 	deregulation 	has 	not 	been
To 	the 	extent 	that 	this 	requirement 	is 	aimed 	at 	pre-
venting 	destructive 	competition 	and 	predatory 	pricing, 	it 	seems
not 	to 	be 	well 	founded. 	See 	supra 	pp. 	4-5.
Tennessee 	has 	a 	legitimate 	interest 	in 	promoting 	safety
on 	its 	highways. 	As 	we 	discussed 	earlier, 	economic 	deregulation
has 	not 	been 	shown 	to 	reduce 	safety. 	See 	supra 	p. 	6. 	Rather
than 	attempting 	to 	address 	this 	concern 	through 	economic 	regula-
tion, 	a 	direct 	approach 	seems 	preferable. 	Current 	statutory 	and
regulatory 	provisions 	require 	that 	carriers 	submit 	to 	regUlar
safety 	inspections 	and 	comply with 	all 	federal 	safety 	standards.
See 	Tenn. 	Code 	Ann. 	§ 	65-15-113; 	Tenn. 	Compo 	R.& 	Regs. 	tit.
1220, 	ch. 	2-1-.20. 	Through 	provisions 	such"as 	these, 	Tennessee
has 	promoted 	its 	understandable 	safety 	interests 	directly. 	We
believe 	that 	consumers 	and 	competition 	in 	Tennessee 	will 	be 	best
served 	if 	Tennessee 	continues 	to 	promote 	safety 	directly.

,,..
l
Mr. 	Glen 	McKay
Page 	18
established, 	and, 	in 	any 	event, 	economic 	regulation 	is 	not 	likely
to 	be 	an 	efficient way 	to 	improve 	safety. 	We 	believe 	that
eliminating 	or 	scaling back 	economic 	regulation 	of 	trucking 	is
likely 	to 	result 	in 	significant 	benefits 	for 	Tennessee 	consumers.
We 	appreciate 	this 	opportunity 	to 	comment.
--....--e_rel\ ~
c. 	steven 	Baker
Director
,"'!"',