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The relevant market for less-than-truckload freight: deregulation's consequences.

Delineating the relevant market occupies center stage in many antitrust disputes. Indeed, in monopolization and merger cases, the boundaries of the product market or the geographic market often determine the outcome of the case.(1)

Historically, delineating the relevant market has not been an important issue in transportation economics. Until recent years, entry and rate regulation by the Interstate Commerce Commission (ICC), coupled with extensive intrastate regulation, minimized the applicability of the antitrust laws to the railroad and trucking industries.(2) However, the Motor Carrier Act of 1980 significantly changed this regulatory posture.(3) The antitrust laws now are a major regulatory force in the transportation sector.(4) That means the question of market delineation becomes a major economic issue.

This article examines the relevant market for freight transportation of less-than-truckload dimensions. Deregulation has altered significantly the character of this market. The result is that old regulatory taxonomies about motor carrier freight no longer mesh with economic realities.

From an economic perspective, a market's boundaries are to be large enough to include the products and firms that nonnegligibly constrain the price and output behavior of the firm(s) under antitrust scrutiny. Under deregulation, less-than-truckload motor carriers have come to be constrained not only by their competition with each other, but by an array of transport alternatives. These multiple alternatives render such carriers unlikely prospects for merger or monopolization scrutiny under the antitrust laws.

LESS-THAN-TRUCKLOAD FREIGHT

An alphabet of final and intermediate goods, from abrasive materials to zinc sheets, are transported on trucks as less-than-truckload (LTL) shipments. Before the existence of the modern trucking industry, many of these goods traveled by rail. With technological improvements in trucks, highways, and loading/unloading, motor carriers replaced rail as the dominant means of transporting LTL freight.

The ICC defines the LTL sector as "companies that handle shipments of under 10,000 pounds."(5) LTL freight often is contrasted with truckload (TL) freight in which a shipper "rents" the entire cube space of a trailer. In less-than-truckload freight, a shipper - say of four 85-lb. canons of automotive parts - rents a portion of a trailer's space, along with other shippers.

For years prior to deregulation, the ICC required Class I Instruction 27 motor carriers to report annually their LTL freight revenue from intercity service, their LTL tons of freight carried, and the number of LTL intercity shipments transported.(6) The primary shortcoming of this database is that it does not embrace LTL freight carried by other transport alternatives.

By the mid-1980s it became evident that deregulation had altered significantly the transportation of LTL freight. ICC data on LTL tonnage hauled by Class I motor carriers reveal a significant decline in tonnage beginning in 1977. In that year, LTL tonnage figures reported to the ICC by Class I carriers were 70.2 million tons. By 1989, LTL tonnage carried by reporting carriers had fallen to 63.1 million tons.(7) Yet, during this time, there was a growing volume of final and intermediate goods transported as LTL freight. Much of this tonnage was being shipped by means other than traditional reporting motor carriers. A significant amount of this freight now is carried by supply-side alternatives no longer captured by ICC data and not available to shippers prior to deregulation.

LTL TRANSPORTATION SERVICE SUPPLIERS

Before the Motor Carrier Act of 1980, LTL freight moved primarily by integrated motor carriers engaged in the collection of freight from shippers in local trucks which were unloaded at an origin terminal for consolidation into one trailer for motor carrier intercity movement; there was optional assembly or disassembly at intermediate breakbulk terminals; the freight was unloaded at a destination terminal; and then delivered to local consignees. If a single carrier was not authorized to travel on a route structure from pickup point to delivery point, the shipment was interlined with other regulated LTL motor carriers.

LTL motor carriers recognize that, since deregulation, large portions of their traditional "market" are being taken by alternatives to single-line and inter-line LTL motor carriage, particularly at the top and the bottom end of the weight continuum.(8) From industry sources and the trade press, the following array of potential alternatives can be considered possible supply-side substitutes for single-line LTL motor carriers:

Truckload (TL) Common Carrier

TL common carriers may transport shipments of less than 10,000 pounds to top off their load, or by stop-offs. TL carriers often work in conjunction with a consolidator, freight forwarder, broker, or shippers association to facilitate the assembly of LTL shipments into TL magnitude. TL carriers often join forces with railroads, making their linehaul segments intermodal.

United Parcel Service (UPS)

Although UPS does not handle large parcels, it handles multiple shipments from shippers to consignees totaling thousands of pounds. It is the largest trucking firm in the United States. UPS has become an increasing force in the transportation of LTL-eligible freight. The NASSTRAC publication "Small Shipments and Parcels Guidelines to the Cost-Effective Selection of UPS/USPS/LTL Domestic Ground Services" illustrates when UPS is superior to LTL common carrier. When UPS successfully sought the right to pick up multiple parcels weighing in the aggregate more than 100 pounds in 1979, many LTL motor carriers petitioned the ICC to bar this move, testimony to the constraining influence of UPS upon traditional LTL motor freight.(9)

Freight Forwarder, Pool Consolidator, Broker, and Shippers Association

These organizations arrange for the transportation and delivery of LTL-eligible freight by offering the consolidation and delivery service, but generally purchase the remaining portion of the movement from another party such as a railroad or TL carrier. The freight forwarder (or pool consolidator) is a third-party intermediary (who may own equipment for local cartage). Brokers serve the same consolidating function, but generally are not responsible for loss or damage to shipments in transit. Brokers are particularly active in matching shippers with TL motor carriers, but also arrange for the transportation of LTL freight. One study estimated that brokers handled approximately 10.8 million TL shipments and 2.8 million LTL shipments in 1988. About 60 percent of brokers surveyed were engaged in arranging LTL-eligible freight delivery.(10) Shippers associations (or cooperatives) work much like a freight forwarder, except they typically are operated by a group of shippers. An association may operate its own equipment, or contract with other trucking companies, or railroads, for the services it arranges for its members.

Self-haul (or Private Carriage)

Shippers always have been allowed by the ICC to integrate forward into motor carrier operation, but only since deregulation could such firms sell capacity to other shippers in competition with traditional LTL motor carriers. Current data on the transportation of LTL-eligible freight by private carriage is sketchy. Private carriage is a more robust competitive alternative when the shipper has large volume, and its distribution pattern is concentrated. To the extent servicing its own needs generates backhaul capacity, private transport will be a stronger competitor with LTL motor carriers operating on the backhaul lanes.

Railroads

Railroads at one time were important carriers of package freight. Today, railroad competition for LTL-eligible freight occurs in two ways. First, railroads align themselves with independent transportation intermediaries and provide the line-haul carriage in lieu of motor freight common carrier. Second, some rail-based corporations (such as Union Pacific in conjunction with its Overnite trucking subsidiary) offer LTL freight services; Amtrak offers LTL freight services and arranges for local cartage at east and west coast pickup and delivery locations.

Excluded from consideration as market participants for LTL-eligible freight are parcel post (because of the weight limitation) and intercity bus (though some shippers of LTL-eligible freight find it an alternative). Also excluded is overnight air freight (though increasing amounts of "air freight" never enter a plane's cargo bay, but are transported by truck as non-expedited air freight). For the bulk of LTL-eligible freight, reliable delivery schedules are important, but overnight delivery is not.

RESEARCH METHODOLOGY

To assess the multiple alternatives available to LTL shippers, a telephone survey was made of traffic and logistics managers responsible for transporting LTL-eligible freight. The survey, involving 829 qualifying respondents, was centered around three questions related to the relevant market for LTL freight.(11) These questions are:

1. What transportation options do shippers currently use for LTL-eligible freight?

2. What transportation options not currently used by transportation decision makers are perceived by shippers as substitutable for LTL-eligible freight?

3. If the price of single-line LTL motor carrier service were to increase significantly relative to the price of other transportation services, would this affect shippers' use of single-line LTL motor carrier service?

Respondents were manufacturers in a variety of industries who sent shipments weighing between 100 and 10,000 pounds (excluding next-day service) on the traffic lanes of New York to Chicago; Chicago to New York; and Charlotte to Chicago.(12) Shippers and consignees were located in these metropolitan areas or located in catchment areas within fifty miles of them.

RESEARCH RESULTS

Table 1 reveals the number of LTL transportation service alternatives used by the 829 respondents. While the vast majority use the services of single-line LTL motor carriers, about 15 percent do not. Almost as many use United Parcel Service as ship via single-line LTL motor carriers, and a significant number use some form of TL motor carrier to transport LTL-eligible freight.

The most pertinent single statistic derived from Table 1 is that the average shipper uses 5.6 different transportation options to ship LTL-eligible freight. Of the 709 respondents who used single-line LTL motor carriers, an average of 5.9 other options were used to transport their LTL-eligible freight. Those who shipped all their LTL-eligible freight sans any single-line LTL motor carriers used an average of 3.9 different options. Analysis of the response data by SIC code, employment size, or by location reveals no significant deviations from the general pattern.(13) When asked to identify other modes for shipping LTL-eligible freight, the typical respondent could identify 3.0 additional options, not including the average of 5.6 currently in use.
Table 1. Transportation Options Used by Survey Respondents for LTL
Eligible Freight (Total Respondents = 829)

LTL Service Alternative Respondents % of Total
 Using Respondents

Single-line LTL motor carrier 709 85.5%
UPS - Piece rate 613 73.9%
Interline LTL motor carrier 355 42.8%
Truckload - Weight [less than]8000 lbs. 354 42.7%

UPS - Hundredweight 297 35.8%
Consolidators 327 39.4%
Truckload - Weight [greater than]8000 lbs. 307 37.0%
Truckload - Linehaul 285 34.4%

Air forwarder - Economy 222 26.8%
Private fleet - Other companies 223 26.9%
Brokered backhaul on TL carriers 176 21.2%
Expedited surface forwarder 160 19.3%

Brokered space - Sched. team trks 147 17.7%
Airline economy service 120 14.4%
Private fleet- In house 168 20.3%
Shipper Co-op LTL programs 125 15.1%
Other 051 6.2%


Motor carrier deregulation, and the network expansion opportunities it affords, have not eliminated the use of interlined LTL motor carrier service. Over 40 percent of the respondents indicated they use motor carriers who interline freight.

Table 2 summarizes responses to the second question of the survey: what options, not currently used, were considered realistic alternatives for the shipment of LTL-eligible freight? Even the twenty-two respondents who reported they used only single-line LTL motor carrier services could identify an average of 4.0 alternatives.

[TABULAR DATA FOR TABLE 2 OMITTED]

Traffic and logistics managers who eschewed the use of any single-line LTL motor carriers for LTL-eligible freight considered an average of 2.1 other alternatives as options to meet their demand for LTL transportation services. There were no observable differences in these responses when disaggregated by size of shipper, lane, or SIC code.

The third question - asking respondents how they would react to a significant price increase in single-line LTL motor carrier rates - parallels the 1984 Department of Justice Merger Guidelines. The most controversial question in the Guidelines approach to market delineation is to:

...ask what would happen if a hypothetical monopolist of that product imposed a "small but significant and nontransitory" increase in price. If the price increase would cause so many buyers to shift to other products that a hypothetical monopolist would not find it profitable to impose such an increase in price, then the Department will add to the product group the product that is the next-best substitute for the merging firm's product and ask the same question again .... In attempting to determine objectively the effect of a "small but significant and nontransitory" increase in price, the Department in most contexts will use a price increase of five percent lasting one year.(14)

The 5 percent figure has been criticized because it references a real price increase. A 5 percent increase may not seem significant if interpreted in nominal terms, or as a "list" price increase subject to discounting negotiation.

To gauge the market perceptions of traffic and logistics managers, a third question was designed to learn the nexus, if any, between a significant increase in the price of LTL single-line motor carrier service and the respondents' propensity to use alternative modes. This question was asked only of those respondents currently using single-line LTL motor carriers (709 out of the 829). If a traffic or logistics manager inquired what was meant by a significant price increase, survey personnel were instructed to report at least a 5 percent increase.

On average, six out of ten respondents answered affirmatively that a significant price increase in single-line LTL motor carrier service would affect their use of other alternatives. An overwhelming percentage (95.6 percent) of these indicated they would either increase their utilization of other alternatives, or they would switch to alternatives not currently being used. There was no important variation in these results when the responses were divided by industry classification, shipper size, or lane.

ANTITRUST IMPLICATIONS

That the relevant market for LTL-eligible freight embraces more than single-line LTL motor carriers has immediate antitrust implications and raises further issues for research. The immediate implication is that monopolization cases and merger cases entailing motor carriers cannot be assessed under the regulatory taxonomy used by the ICC. There is no economic market corresponding to the ICC trucking category of Class I Instruction 27 carrier. The market now casts a longer shadow.

What remains to be understood is the universe of firms engaged in the provision of LTL-eligible transportation services, their identities, and size. This information becomes particularly important in merger analysis under the Merger Guidelines in order to calculate Herfindahl indices.

Identifying the firms that transport LTL-eligible freight is not a trivial problem. Assigning them a size and market share is even more difficult. Many of the firms take different shapes depending upon the customer involved. In this sense, these firms exist as shifting bundles of contracts instead of stable bundles of assets. For example, a broker who contracts with a local drayage firm for pickup and delivery of LTL-eligible freight, and contracts with a railroad to do the linehaul, is a competitor in this market. But measuring its size is problematic, at least in traditional categories of tonnage and shipments; and its size must be disassembled from the other firms that are part of its operation if these entities combine with other brokers to participate in the relevant market.

To estimate how much LTL-eligible freight was being transported by modes other than single-line LTL motor carriers, survey respondents were asked, What percent of your 100-10,000 pound shipments move by transportation modes other than single-line LTL motor carriers? This was asked in part to insure that alternatives cited by traffic and logistics managers were not trivial in their usage.

Some traffic and logistics managers (119) were able to estimate the range (e.g., 25-50 percent) of their LTL-eligible freight shipped by modes other than single-line LTL motor carrier. Others (604) were able to offer a specific percentage of such shipments.

The weighted average of all specific responses was 40 percent, i.e., 40 percent of respondents' LTL-eligible freight was shipped by modes other than single-line LTL motor carrier. Of the 119 whose response involved a range of freight that did not move by single-line LTL motor carrier, 78 put the range between 1 and 25 percent; 10 put the range between 26 and 50 percent. Only 4 respondents put the range at 51 to 75 percent; and 27 estimated their range of LTL-eligible freight moving by other than single-line LTL motor carrier to be 76 to 99 percent of their shipments. No important variations were found when these responses were divided by SIC code, shipper size, or particular lane.

If the shippers surveyed are representative of the national population, this means, conservatively, over one third of the LTL-eligible freight in the U.S. is transported by means other than single-line LTL motor carriers.

This figure squares with the analysis of the trucking industry done by the U.S. Department of Commerce in its annual Industrial Outlook. This document cites an 18 percent drop in reported LTL tonnage by Instruction 27 carriers in the face of a 20 percent increase in GNP.(15) Commenting on the decline in ton-miles transported by all Instruction 27 motor carriers during 1978-1986, the report mentions the "many forms" of alternatives to Instruction 27 motor carriers that deregulation has facilitated, citing as LTL shipper options: brokers who perform the consolidating function, shippers associations, private carriers, logistics consultants, and other types of transport firms using railroads for linehaul, as well as United Parcel Service and air courier companies (who offer trucks for delayed service delivery).(16)

OTHER STRUCTURAL FEATURES OF THE MARKET FOR LTL FREIGHT

In antitrust analyses involving allegations of monopolization, and in merger filings, the boundaries of the relevant market and the accompanying measures of concentration are not the only economic variables that courts and policy makers consider. An assessment also is made of entry conditions into the relevant market.

In the debates over deregulation of the trucking industry, it was generally recognized that once government licensing restrictions were removed, there would be no significant barriers to entering the market for hauling TL freight. A great deal of new entry in TL motor carriage was expected and a great deal occurred.

In the market for LTL-eligible freight, deregulation proponents were not as accurate in their entry forecasts. There have been, since deregulation, many exits of motor carriers.(17) De novo entry by single-line LTL motor carriers has been virtually nonexistent.

However, a sizable amount of "entry" in the form of geographic market extension by traditional LTL motor carriers has taken place on a lane basis. Existing LTL motor carriers, no longer beholden to the ICC for permission, expanded their traffic networks by supplying origin and destination nodes they did not (and were not allowed to) serve previously. Holding operating rights permitting interstate shipments to all destinations from any state became routine.(18)

However, as this study reveals, much of the entry into the market for LTL freight has taken the form of alternatives to single-line LTL motor carriers. As mentioned above, measuring the size and number of these "bundles of contracts" is problematic. It is clear, however, that there are not significant barriers to entry facing these modes at the interstate level and that deregulation has eased entry conditions into the market for LTL-eligible freight, either de novo, or by lane expansion.

De novo entry can take place at relatively small capital costs because of the array of leasing arrangements available for the line-haul and pickup and delivery functions. Mabley and Strack, in discussing the greater ease of entry induced by deregulation, cite the decline in the value of operating rights as evidence.(19)

In defining a market under the Merger Guidelines, a ready supply response by "producers of other products switching existing facilities to the production of the product; or ... producers entering into the production of the product by substantially modifying existing facilities or by constructing new facilities" means such producers belong in the relevant market for antitrust purposes.(20) Because such supply responses are both possible and occurring, Barnekov places TL motor carriers in the same market with LTL motor carriers. Barnekov argues that since 1980, the

largely artificial boundaries among transportation modes (LTL, TL, air freight, railroads, barges, and so forth) have been vanishing. Without the arbitrary restrictions imposed by regulatory systems, the transportation services sector is becoming more and more one market rather than separate markets. In fact, largely as a result of deregulation, shippers are increasingly oriented toward a total, integrated logistics operation (including inventory management, handling, and warehousing) rather than simply purchasing transportation alone.(21)

In short, in a deregulated environment, the truckload/less-than-truckload distinction loses the brightline character it had under regulation. Even if there were no substitutability on the demand side, there now is substitutability on the supply side. If assets invested in TL freight were to generate supracompetitive rates of return, LTL motor carriers could compete for TL business with virtually no entry costs. Moreover, some motor carriers currently concentrating on TL freight transport LTL-eligible freight on a niche basis. When a major shipper reduces its use of self-haul, and elects to use LTL motor carriers, TL carriers often will endeavor to skim the heavier LTL shipments. Motor carriers who are primarily LTL carriers may seek backhaul business, thereby competing with motor carriers who are primarily TL.(22)

The only significant entry barriers in the market for LTL freight existing today are found at the intrastate levels in states retaining extensive rate and entry controls.(23)

CONCLUSION

Defining the relevant market for purposes of antitrust assumes a pivotal role in part because the courts have assigned it one. As the Supreme Court has held:

Determination of the relevant market is a necessary predicate to a finding of a violation of the Clayton Act because the threatened monopoly must be one which will substantially lessen competition "within the area of effective competition." Substantiality can be determined only in terms of the market affected.(24)

Since monopolization can take place only in a market, antitrust dictates a market focus.

Recent literature has questioned the pivotal role that market definition has come to play in antitrust enforcement.(25) Some literature suggests a greater emphasis should be placed on the calculation of direct demand and supply elasticities to assess the degree of competition among specific market participants.(26)

It is unlikely this approach will prove fruitful in antitrust analysis involving surface freight transportation. In the case of LTL-eligible freight, as with most transportation services, the unit of output is undefined.(27) A ton-mile of freight moving on Bromley Street in Boston is a different service than a ton-mile of even identical freight traveling on Highway I-95 outside of Boston. Because the product is an economic variable of almost infinite heterogeneity, the market for LTL transportation services does not lend itself to estimation of firm-specific elasticities or cross-elasticities.

The movement of LTL freight can vary as to speed of service, flexibility of service, and dependability of service - all of which are traded off against price. In the competition for LTL-eligible freight, a common response to a price cut by a rival is for the current provider to endeavor to retain the account by offering a "different product" within the same relevant market.

For example, the supplier may negotiate with a logistics manager to reserve a particular loading dock at a specified time only for that transport provider, contract to pick up within that time, agree to configure the freight to simplify loading, provide a software program compatible with the shipper's computer to facilitate billing and cost estimation, or offer a range of other changes that enable gains from trade. All of these may affect the real price, but in ways that calculations based on nominal prices will not measure.

As an alternative to direct measurements of elasticity or cross-elasticity, this article reports survey results in which a large number of shippers of LTL-eligible freight (from a variety of SIC industries) were asked to report on the transport modes they used and the market alternatives they saw for traditional single-line LTL motor carrier service. The results indicate the old-fashioned category of Class I Instruction 27 motor carrier, while possibly useful for some purposes of taxonomy, no longer describes market realities. The market for LTL-eligible freight encompasses supply side alternatives well beyond those normally used prior to the Motor Carrier Act of 1980. This has important implications for assessing these markets for antitrust purposes.

ENDNOTES

1 See G. J. Werden, "The History of Antitrust Market Delineation," U.S. Department of Justice, Antitrust Division, Economic Analysis Group Discussion Paper EAG 92-8, July, 1992. The most prominent approach in antitrust for defining market boundaries is the Department Justice Merger Guidelines (reprinted as "Special Supplement," 62 BNA Antitrust & Trade Regulation Report, No. 1559, April 2, 1992).

2 Antitrust enforcement was never totally supplanted by administrative agency regulation. U.S. v. McLean Trucking, 312 U.S. 67 (1944); California Motor Transport v. Trucking Unlimited, 404 U.S. 508 (1972).

3 Motor Carrier Act of 1980, Public Law 96-296, July 1, 1980. Substantial deregulation of motor carrier freight already had begun in 1977 through administrative actions on the part of the ICC. Prior to the Motor Carrier Act of 1980, the ICC already prohibited rate bureaus from protesting independent rate filings by members, ruled that companies engaging in self-haul could apply for interstate trucking authority to haul for others, deregulated shipments under federal contracts, abolished the restriction that contract motor carriers could haul for no more than eight shippers, and significantly relaxed entry standards in twelve transportation sectors. See Annual Reports of the ICC, 1975-1980.

4 Thus far antitrust activity in the trucking industry has pertained largely to pricing issues, notably allegations of predatory pricing and collective rate making. See Lifschultz Fast Freight v. Consolidated Freightways Corp., 805 F. Supp. 1277 (D.S.C. 1992), aff'd per curiam, No. 92-2523 slip op. (4th Cir. July 6, 1993), cert. denied, U.S. Supreme Court. This case represented an unsuccessful challenge to the flexible, customer-specific pricing strategies made possible by deregulation. For a challenge by the Antitrust Division to collective rate making, see ICC No. 40396, Petititon of the U.S. Dept. of Justice For An Order Requiring The Members Of The Rocky Mountain Motor Tariff Bureau To Show Cause Why Their Antitrust Immunity To Discuss And Agree On General Rate Increases Should Not Be Withdrawn, filed December 19, 1989. Rate bureaus have been a declining factor in interstate trucking, with the three largest motor carriers now having ceased all participation in them.

5 ICC Ex Parte No. MC-196, Investigation of Motor Carrier Collective Ratemaking and Related Practices and Procedures, May 1991.

6 Since 1980, Class I Instruction 27 motor carriers were those with adjusted annual gross operating revenues of at least $5 million.

7 Interstate Commerce Commission, Office of Economics, Transport Statistics in the United States, Motor Carriers, various years.

8 Discussions with shippers reveal much the same thing. At a meeting of the National Small Shipments Traffic Conference (NASSTRAC) convention, discussions with NASSTRAC members revealed that they considered a range of supply side alternatives to transport LTL-eligible freight. This anecdotal evidence was underscored by the number of firms exhibiting transportation services at the NASSTRAC convention who are not single-line LTL motor carriers.

9 See United Parcel Service Petition to Remove Restriction. ICC MC-116200; decision by ALJ, 1/18/79; decision by ICC, 3/14/80.

10 T. A. Brown, "Role of Intermediaries in Unregulated Markets: Transportation Brokers," Small Business Administration Report PB89-215065, April, 1989.

11 Respondents were randomly selected manufacturers producing one or more of the four-digit SIC commodities identified as being key generators of LTL shipments according to the Department of Commerce's 1977 Transportation Commodity Survey. A standard 2 percent random "nth" occurrence sampling was drawn from a universe of 40032 plants (with 50+ employees) located in three metropolitan areas. Survey prospects were selected and called until responses equaled 2 percent of the total companies in each survey sample cell. To reach the requisite percent of the universe, 2,133 calls were made. Nonusable interviews were the result of: a move from the survey area (.5 percent); no contact after three attempts (6.3 percent); refused to participate (15.2 percent); accepted written surveys only (2.0 percent); and did not pass qualification question as an LTL shipper (37.2 percent). The survey was conducted in July-August 1989 in the context of a consulting project with professor B. J. LaLonde. Questions were open-ended without prompting; key word glossaries were used if a respondent was unsure about semantics.

12 The qualifying question was, "During the past year, have you sent shipments that weigh between 100 and 10,000 pounds to (Chicago, New York, Charlotte) or destinations within 50 miles of (Chicago, New York, Charlotte)?" If the answer was yes, the respondent was asked which transport options were used for such shipments (excluding next day service). To avoid order bias, the transport options were randomized. Definitions of the various survey options are available from the author upon request.

13 For example, firms with employment size 50-99 select from among 5.8 options while firms with over 1000 employees use an average of 6.4 options. A cross-section by SIC code gave a range from 5.1 (SIC code 23) to 6.5 (SIC code 26). Firms shipping on the New York to Chicago lane reported using 5.6 options; firms shipping the opposite direction reported an average of 5.8 options.

14 United States Department of Justice Merger Guidelines, June 14, 1984, pp. 4-5. The 1992 version indicates the government agencies will "use a price increase of five percent lasting for the foreseeable future." Special Supplement, 69 BNA Antitrust & Trade Regulation Report S-5 (April 2, 1992).

15 Op. Cit.; p. 52-6.

16 Ibid.

17 A Department of Transportation study attributes many of the motor carrier exits to changes in aggregate demand, especially the recession of 1981-1982. See "Five Years After The Motor Carrier Act Of 1980: Motor Carrier Failures And Successes," U.S. Department of Transportation, September, 1985. A study by the General Accounting Office also cites poor economic conditions as the main cause for motor carrier exits in the heels of the "Motor Carrier Act of 1980. See "Effects Of Regulatory Reform On Unemployment In The Trucking Industry," General Accounting Office, GAO/CED-82-90, June, 1982. N. Glaskowsky attributes these exits to a variety of causes, including increasing imports, failure to exploit new developments in information retrieval and operating economies, death of key management, and management failure to anticipate the changes of deregulation. See his Effects of Deregulation on Motor Carriers. Eno Foundation for Transportation, 1986.

18 Quantitative assessment of lane expansion has been elusive. Dennis Breen, in a study for the Federal Trade Commission, estimated that between 1979 and 1981, the number of trucking firms operating on 248 major traffic lanes had increased in 179 of these routes. "Market Structure and Competition in Trucking," Federal Trade Commission Bureau of Economics Working Paper (1984), p. 21.

19 See R. E. Mabley and W. D. Strack, "Deregulation - A Green Light for Trucking Efficiency," Regulation July/August, (1982), pp. 36-56. The American Trucking Association has estimated the value of these operating rights negated by deregulation at $5-7 billion.

20 Op. cit., p. 5.

21 Op. cit., p. 52-6.

22 The main difference between TL and LTL freight is the general requirement, in the case of LTL freight, to assemble a number of shipments into one trailer at one origin node and reverse that process at destination nodes. Usually, this is done through a freight terminal. For large established motor carriers, terminals constitute one of the major asset categories. But terminal facilities can be leased. Major cities usually have a market for such assets, and some LTL suppliers seeking to enter a new territory may lease only a few doors at an existing terminal with excess capacity. Interlining also may offer an opportunity to extend a firm's geographic reach without securing additional terminal capacity.

23 See "Trucking Regulation: Price Competition and Market Structure in the Trucking Industry," General Accounting Office, GAO/RCED-87-16, February 1987, pp. 16-18.

24 Brown Shoe Company v. U.S., 370 U.S. 294, 324 (1962).

25 See, for example, W. Landes and R. Posner, "Market Power In Antitrust Cases," 94 Harvard Law Review 937 (March 1981) at 950 and 960-63.

26 For examples, see D. T. Scheffman and P. Spiller, "Geographic Market Definition Under The DOJ Guidelines," 30 Journal of Law & Economics 123 (April 1987); J. B. Baker and T. F. Bresnahan, "Estimating The Residual Demand Curve Facing A Single Firm," 6 International Journal of Industrial Organization 283 (1988). The tap root of measuring monopoly power directly from elasticity figures is A. P. Lerner, "The Concept of Monopoly And The Measurement Of Monopoly Power," Review of Economic Studies 157 (1934).

27 "Thus, in transportation there is no such thing as the MC of output - there are a vast number of 'marginal costs.' Nor is the unit of output homogeneous in the sense required by production theory in economic analysis. Indeed, the output unit is multidimensional in terms of weight, distance, and velocity, each one of which is an independent source of cost, to say nothing of the other quality aspects of particular movements (dependability, safety, flexibility, etc.)." G. W. Wilson, Economic Analysis of Intercity Freight Transportation. Bloomington: Indiana University Press (1980), p. 64. See also G. W. Wilson, "On the Output Unit in Transportation," 36 Land Economics 266 (1959).

Mr. Elzinga is professor of economics, University of Virginia, Charlottesville, Virginia 22901. The author is grateful to Christopher Barnekov, Kenneth D. Boyer, and anonymous referees for helpful comments.
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Date:Dec 22, 1994
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