THE COST STRUCTURE OF THE REGULATED MOTOR CARRIER INDUSTRY

The cost structure of the regulated motor carrier is important because of its implications for regulatory policy. In particular, if the industry is subject to significant economies of scale, then the relaxation of regulations could lead to destructive competition in the short run followed by increased concentration and monopoly power abuse in the long run. If the industry is best characterized by an average cost curve with a small minimum efficient scale, then the dangers of deregulation should be small.This study uses a translog cost function to analyze the costs of general commodity carriers and the specialized carriers of petroleum products, building materials, and refrigerated products. Cost is modeled as a function of output, input prices and various service characteristics.The major conclusion is that the above carrier groups have distinct technologies and operations which are reflected in our finding that their cost structures are also unique. For general commodity carriers we find an absence of economies of scale both across output and across their scope of operations. All of the specialized carrier groups are characterized by small minimum efficient scales followed by constant or mildly rising average costs.For the bulk of the motor carrier industry we find it unlikely that deregulation would lead to abuse of monopoly power. Evidence from currently unregulated trucking markets suggests that deregulation would lead to significantly lower rates, especially on high density routes. The higher costs found to be associated with low density trucking, however, imply that service to rural areas could suffer.The available evidence on motor carrier costs is remarkable in two ways. First, there has been a great variety of results. Researchers have found average cost curves of every conceivable shape. Second, there has been almost no work done on the carriers of specialized commodities. This is surprising given that specialized carriers account for about one half of all common carrier ton-miles.