FTC Staff Comment Before the Michigan Public Service Commission Concerning Proposed Amendments to Rules Regulating Intrastate Trucking

V920022
COMMISSION AUTHORIZED
PREPARED 	STATEMENT
OF
PHILLIP 	BROYLES
DIRECTOR
CLEVELAND REGIONAL OFFICE
FEDERAL TRADE 	COMMISSION
BEFORE 	THE
PUBLIC 	SERVICE 	COMMISSION
OF THE
STATE OF MICHIGAN
November 	5, 	1992

Mr. 	Chairman and Members 	of 	the 	Commission: 	I 	am 	pleased to
appear before 	you 	today 	to 	discuss 	the 	potential 	effects 	on
competition of 	the 	Michigan Public 	Service Commission's 	("MPSC")
proposed 	amendments 	to 	its 	rules 	regulating 	intrastate
trucking. l This 	testimony 	represents 	the views 	of 	the 	Cleveland
Regional 	Office 	and the 	Bureau 	of 	Economics 	of 	the 	Federal 	Trade
Commission. 	They are 	not 	necessarily 	the views 	of 	the 	Commission
or 	any 	individual 	Commissioner.
The 	proposed 	rules 	would revise 	procedures 	for 	obtaining
motor 	carrier 	certificates 	and permits, 	by eliminating detailed
restrictions 	on authorities, 	frivolous 	protests, 	and 	non-
competitive compromises 	of 	application proceedings. 2 This
proposal 	could make 	entry 	into 	the 	market 	for 	motor 	carrier
services 	significantly easier. 	The 	staff 	of 	the 	FTC 	believes
that 	relaxing 	restrictions 	on entry 	into 	the 	trucking 	industry
has 	benefited consumers 	and 	competition by 	increasing choices,
improving 	service 	and 	reducing prices 	for 	the 	transportation of
goods. 	Thus, 	we 	support 	the 	goals 	that 	the MPSC 	has 	announced
for 	this 	proceeding, 	to 	promote 	productivity, 	efficiency, 	and
competition, 	and particularly to 	increase 	competition by easing
entry 	into 	the 	market. 	Studies 	of 	motor 	carrier 	regulation, 	both
federal 	and 	state, 	show 	that 	consumers 	benefit most 	when
operating 	authorities 	are 	broad, 	rather 	than 	narrowly 	restricted,
and when 	incumbent 	carriers' 	opportunities 	to 	protest
applications 	by prospective 	entrants 	are 	limited.
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 the 	Federal 	Trade
1 Inquiries 	regarding 	this 	testimony 	should be 	directed 	to
Phillip Broyles 	(216-522-4210) 	Director, 	Cleveland Regional
Office, 	or 	to 	Timothy Daniel 	(202-326-3520), 	Assistant 	Director
for 	Economic 	Policy Analysis, 	Bureau 	of 	Economics.
2 Proposed Revisions 	to Motor Carrier Rules, 	Case 	No. 	T-
1210; 	proposed 	revisions 	to 	Mich. 	Admin. 	Code 	R 460.18201,
.18202, 	and 	.18204, 	Applications 	for 	Motor Carrier 	Certificate 	or
Permit. 	This 	comment 	will 	focus 	on 	this 	aspect 	of 	the 	proposed
rules. 	Other parts 	of 	the 	proposal 	involve 	safety 	and 	accident
reporting, 	evidentiary procedures, 	household 	goods 	carrier
estimates, 	deceptive 	advertising of 	licensing, 	and 	technical
tariff 	filing 	requirements.
1

Commission Act.) 	Section 	5 	of 	the 	FTC 	Act 	prohibits 	unfair
methods 	of 	competition and 	unfair 	or 	deceptive 	acts 	or 	practices
in 	or 	affecting commerce. 4 Under 	this 	statutory mandate, 	the
Commission 	staff 	seeks 	to 	identify 	restrictions 	that 	impede
competition or 	increase 	costs 	without 	offering countervailing
benefits 	to 	consumers. 	In enforcing the 	FTC Act, 	the 	staff 	of
the 	FTC 	has 	gained 	substantial 	experience 	in 	analyzing 	the 	impact
of 	private 	and 	governmental 	trade 	restraints 	and 	their 	effects 	on
consumers 	and 	competition. 	The 	staff 	of 	the 	FTC 	submits 	comments
sharing 	its 	experience, 	upon 	request, 	to 	federal, 	state, 	and
local 	governmental 	bodies 	to 	help 	them 	assess 	the 	implications 	of
proposed 	legislation 	and regulations.
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 	federal 5 and 	state 6 levels. 	In
addition, 	the 	Bureau 	of 	Economics 	of 	the 	FTC 	has 	published a
report 	on 	trucking 	deregulation 	(including the 	relaxation 	of
) See 	15 	U.S.C. 	§§ 	41-58. 	The 	Commission has 	additional
enforcement 	responsibilities 	under 	the 	Clayton Act, 	15 	U.S.C.
§§12-26, 	and several 	other 	statutes.
4 15 	U.S.C. 	§ 	45.
5 	See comments 	of 	the 	staff 	of 	the 	FTC 	on Pricing Practices
of 	Motor Common Carriers 	of 	Property Since 	the Motor 	Carrier Act
of 	1980, 	Interstate 	Commerce Commission, 	Ex 	Parte 	No. 	MC-166
(January 	1983); 	Exemption of 	Motor Contract 	Carriers 	from 	Tariff
Filing Requirements, 	Interstate 	Commerce 	Commission, 	Ex 	Parte 	No.
MC-165 	(1983); 	see 	also 	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).
6 	See 	comments 	and 	testimony 	to 	Illinois 	Commerce Commission
(March 	18, 	1991); 	Tennessee 	Comptroller 	of 	the 	Treasury 	(June 	28,
1990); 	Director, 	Transportation/Gas 	Utilities 	Division, 	Railroad
Commission 	of 	Texas 	(October 	2, 	1989); 	Texas 	House 	of
Representatives 	(tow 	truck 	regulation) 	(April 	18, 	1989); 	Public
Utilities 	Commission of 	California 	(impact 	of 	deregulation)
(October 	27, 	1988); 	Ohio 	House 	of 	Representatives 	(contract
carrier motor 	freight 	rates) 	(February 	16, 	1988); 	California
Senate 	(contract motor 	carrier rates) 	(December 	31, 	1987);
Legislative Audit 	Council 	of 	South 	Carolina 	(September 	29, 	1987);
Washington 	State 	Legislature 	(March 	7, 	1985).
2

entry 	restrictions),] 	and has 	published other 	studies 	concerning
the 	effects 	of 	regulating 	the 	entry of 	competitors 	into 	other
industries. 8 The 	Commission has 	taken 	law enforcement 	action
against 	trucking 	rate 	bureaus 	for 	fixing 	the 	rates 	of 	their
members. 9 Through 	these 	activities, 	the 	staff 	of 	the 	FTC 	has
accumulated considerable 	experience 	in 	analyzing 	the 	effects 	of
trucking 	regulation.
II. 	Regulation of 	trucking
The 	proposed 	rules 	would 	affect 	an 	important 	aspect 	of
trucking 	regulation, 	the 	entry of 	new 	carriers. 	At 	the 	federal
level, 	motor carriers 	have 	been 	substantially deregulated over
the 	last 	decade, 	to 	permit much 	greater 	competition over 	rates
and much easier 	entry of 	new 	carriers. lO In Michigan, 	the 	PSC
has 	moved 	toward 	permitting more 	competition, 	most 	recently 	by
ruling 	that 	collective 	rate 	making 	by 	several 	large 	tariff
bureaus 	was 	inconsistent 	with 	the 	state's 	regulatory 	policies. 11
The 	reasons 	for 	retreating 	from 	pervasive economic 	regulation 	are
clarified by examining the 	arguments 	over 	deregulation 	and 	the
experiences 	where 	economic 	regulation 	(i.e., 	rate 	and 	entry
regulation) 	has 	been relaxed. 	A number 	of 	studies 	have 	concluded
that 	the 	usual 	rationales 	for 	motor 	carrier 	regulation are 	not
] Diane 	S. 	Owen, 	Deregulation 	in 	the 	Trucking 	Industry, 	FTC
Bureau 	of 	Economics 	Staff 	Report 	(May 	1988).
8 	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); 	R.
Rogers, 	The 	Effect 	of 	State 	Entry Regulation on Retail 	Automobile
Markets, 	FTC 	Bureau 	of 	Economics 	Staff 	Report 	(January 	1986).
9 	New 	England Motor Rate 	Bureau, 	Inc., 	112 	F.T.C. 	200
(1989), 	rev'd, 	1990-2 	Trade 	Cas. 	(CCH) 	, 	69,108 	(1st 	Cir. 	1990)
(Commission's 	order 	finding 	violation 	dismissed with 	regard 	to
Massachusetts, 	on 	grounds 	that 	price 	fixing 	actions 	were 	actively
supervised by 	state 	agency), 	modified 	as 	to 	New 	Hampshire,
September 	4, 	1991; 	see 	also 	Motor Transport Association 	of
Connecticut, 	112 	F.T.C. 	309 	(1989) 	(price 	fixing 	found, 	but
complaint 	dismissed because 	action was 	actively 	supervised by
state 	agency).
10 Motor Carrier Act 	of 	1980, 	P.L. 	96-296, 	94 	Stat. 	793
(1980).
11 	Collective Ratemaking 	et 	al., 	MPSC 	Case 	No. 	T-1188 	et
al., 	August 	14, 	1992.
3

persuasive, 	and 	that 	the 	economic 	consequences 	of 	rate 	and 	entry
regulation 	have 	been undesirable. 12
A. 	Arguments 	advanced in support of 	regulation.
Originally, 	regulation of motor 	carrier rates 	and 	new 	entry
was 	intended at 	least 	in part both 	to 	protect 	the 	regulated
railroads 	from 	competition 	from 	the 	unregulated 	and 	expanding
trucking 	industry, 	and 	to 	support 	the 	trucking 	industry by
restricting competition during 	the 	depression 	of 	the 	1930'S.13
The 	arguments 	usually 	advanced 	now 	for 	continuing 	rate 	and 	entry
regulation 	assert 	four 	goals: 	preventing predatory pricing,
forestalling 	destructive 	competition, 	maintaining 	safety, 	and
ensuring 	service 	to 	small 	communities.
1. 	Predatory pricing.
It 	is 	sometimes 	argued 	that 	rate 	and entry 	regulation 	is
necessary 	to prevent 	predatory pricing. 	According 	to 	this 	line
of 	argument, 	larger, 	better 	financed 	companies 	will 	attempt 	to
drive 	out 	competitors 	by 	selling their product 	or 	service 	at 	a
10SS.14 	After 	the 	competitors 	are 	driven 	out, 	the 	surviving
"predators" 	would 	raise 	their prices 	above 	the 	competitive 	level,
eventually recouping 	their 	losses 	and 	increasing 	their 	profits.
The 	practical 	difficulty of 	this 	strategy, 	of 	losing money
now 	in 	the 	hope 	of making more 	later, 	is 	that 	when 	the
"predators" 	tried 	to 	raise 	prices 	to 	noncompetitive 	levels, 	other
firms 	may enter, 	or 	re-enter, 	the market. 	Their entry 	should
take 	business 	away 	from 	the 	"predator" 	and 	force 	prices 	back 	to
competitive 	levels. 	Unless 	that 	entry can be 	blocked, 	predatory
pricing 	is 	likely 	to 	fail. 	The 	Supreme 	Court 	has 	concurred 	in
12 See 	generally Winston et 	al., 	The 	Economic 	Effects 	of
Surface 	Freight 	Deregulation, 	(Washington: 	The 	Brookings
Institution 	1990); 	Breen, 	supra 	note 	5; 	Diane 	S. 	Owen, 	supra 	note
7.
13 	Nelson, 	The 	Changing Economic 	Case 	for 	Surface 	Transport
Regulation, 	in Perspectives 	on Federal 	Transportation 	Policy
(James 	C. 	Miller 	III, 	ed. 	1975).
14 Whether 	a 	sale 	is 	predatory would be 	determined by
comparing the 	price 	to 	cost. 	Under 	the 	test 	that 	the 	FTC 	has
applied, 	sales 	at 	a 	price below 	average 	variable 	cost 	for 	a
significant period of 	time 	are 	presumed 	to 	be 	illegal, 	but 	the
presumption can be 	rebutted. 	See 	International 	Telephone 	&
Telegraph CokP., 	104 	F.T.C. 	280, 	403-04 	(1984); 	General 	Foods
~., 	103 	F.T.C. 	204, 	344-45 	(1984).
4

this 	analysis, 	observing 	that 	"predatory pricing schemes 	are
rarely 	tried, 	and even more 	rarely 	successful. II 	Another
deterrent 	to 	trying 	this 	strategy, 	in 	addition 	to 	its 	risk 	of
failure, 	is 	that 	it 	could be 	attacked by public 	and private
antitrust 	enforcement 	actions.
Predatory pricing arguments 	might 	apply most 	plausibly to
industries 	into which entry 	is 	difficult, 	perhaps 	due 	to 	high
"sunk costs. 11
16 But 	entry 	into 	trucking 	is 	not 	difficult,
except 	for 	the 	problem of 	obtaining regulatory 	approval, 	and 	sunk
costs 	appear 	to 	be 	relatively 	low. 	In 	the 	truckload 	("TL")
segment 	of 	the 	trucking 	industry, 	shipments 	usually 	go 	from
shipper 	to 	consignee without 	intermediate 	handling; 	the 	truck
itself 	is 	the 	only equipment 	needed. 	Trucks 	are 	highly mobile
and can be 	transferred quickly 	to 	alternative 	uses, 	either by
shifting them 	to 	more 	profitable 	geographic 	markets 	or by 	selling
or 	leasing them 	to 	other operators. 	Thus, 	sunk 	costs 	are
probably minimal 	in 	the 	TL 	segment. 17 In 	the 	less-than-
truckload 	("LTL") 	segment, 	involving 	shipments 	of 	less 	than
10,000 	pounds, 	shipments 	often 	are 	transported 	to 	break-bulk
facilities 	before 	reaching 	their 	destinations, 	so 	assets 	such 	as
warehouses 	and 	terminals 	are 	also 	employed. 	But, 	like 	trucks,
warehouses 	and 	terminals 	can easily be 	transferred 	to 	alternative
uses. 	Though 	physically 	immobile, 	these 	assets 	can be 	used 	to
store 	and 	transfer 	numerous 	alternative 	goods. 	An entrant 	can
lease warehouse 	and 	terminal 	space, 	or even when purchase 	is
15 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, 	Predato6Y
Pricing 	and 	Related 	Practices 	Under 	Section 	2 of 	the 	Sherman Act,
88 	Harv. 	L. 	Rev. 	697, 	699 	(1975); 	Easterbrook, 	Predato6Y
Strategies 	and 	Counterstrategies, 	48 	U. 	Chi. 	L. 	Rev. 	263, 	268
(1981); 	Koller, 	The Myth of 	Predato6Y Pricing--An Empirical
Study, 	4 Antitrust 	L. 	& Econ. 	Rev. 	105 	(1971); 	McGee, 	Predato6Y
Price 	Cutting: 	The 	Standard Oil 	(N.J.) 	Case, 	1 	J. 	L. 	& Econ. 	137
(1958); 	McGee, 	Predato6Y Pricing Revisited, 	23 	J. 	L. 	& Econ. 	289,
292-94 	(1980).
16 	Sunk costs 	are 	those 	that, 	once 	incurred, 	cannot 	be
recovered 	should the 	firm 	choose 	to 	exit 	the 	industry.
Expenditures 	on assets 	that 	cannot 	be 	redeployed 	easily 	to
alternative 	uses 	would be 	considered 	sunk costs. 	An example 	of
this 	kind 	of 	asset 	might 	be 	gas 	pipelines.
17 	1	T.E. 	Keeler, 	Deregu 	ation 	and 	Scale 	Economies 	in 	the 	U.S.
Trucking 	Indust6Y: 	An 	Econometric 	Extension of 	the 	Survivor
Principle, 	32 	J. 	L. 	& Econ. 	229, 	250 	(1989).
5

.,
necessary, 	can 	resell 	the 	space 	or 	lease 	it 	to 	others 	for
alternative 	uses.
Since 	predation 	is 	unlikely 	to 	be 	profitable 	or 	successful,
motor 	carriers 	are 	not 	likely 	to 	attempt 	it. 	So 	long 	as 	entry 	by
new 	carriers 	is 	not 	impeded by 	regulation, 	predatory pricing 	in
the 	trucking 	industry 	aPBears 	to 	be 	little more 	than 	a
theoretical 	possibility. 8 	Others 	who 	have 	concluded that
predation 	in 	the 	trucking 	industry 	is 	unlikely 	in a 	deregulated
environment 	include 	the General 	Accounting Office, 	the 	Interstate
Commerce 	Commission, 	the 	Motor 	Carrier Ratemaking 	Study
Commission, 	and 	the 	Department 	of 	Justice. 19
2 • 	Destructive competi tiOD.
It 	is 	also 	argued 	that, 	without 	regulation, 	motor 	carriers
will 	engage 	in 	"destructive 	competition." 	The 	setting 	for 	the
"destructive competition" 	scenario 	is 	typically 	an 	industry with
fluctuating 	demand, 	high 	sunk 	costs, 	and 	a 	high 	ratio 	of 	fixed 	to
total 	costs. 	These 	conditions 	could 	lead 	to 	excess 	capacity and
considerable pressure 	to 	cut 	prices 	when demand 	falls. 	If 	firms
compete 	on 	the 	basis 	of 	price, 	prices 	may 	fall 	below 	the 	total
cost 	of 	providing 	services, 	and 	firms 	may 	try 	to· reduce 	costs 	by
skimping 	on 	service, 	to 	the 	detriment 	of 	customers.
The 	critical 	feature 	of 	this 	scenario 	is 	that, 	because 	so
many costs 	are 	fixed 	or 	sunk, 	adjusting capacity 	in 	the 	face 	of
(unpredictably) 	falling 	demand 	is 	difficult. 	But 	these
conditions 	conducive 	to 	destructive 	competition, 	of 	relatively
high 	fixed 	and 	sunk costs, 	are 	unlikely 	to 	characterize 	the
trucking 	industry. 	Not 	only 	are 	few 	if 	any 	capital 	costs 	"sunk,"
but 	also 	fixed 	costs 	do 	not 	comprise 	a 	large 	percentage 	of 	total
costs. 	Rather, 	the 	major 	portion of 	total 	costs, 	such 	as 	labor
and 	fuel 	expenses, 	would 	generally be 	treated 	as 	variable.
Because 	the 	usual 	preconditions 	appear 	to 	be 	absent 	in 	the
18 	For 	a 	review 	of 	the 	modern 	theoretical 	literature 	on
predatory pricing, 	see 	J. 	Tirole, 	The 	Theory of 	Industrial
Organization, 	chs. 	8 	& 9 	(Cambridge: 	MIT 	Press 	1988).
19 	U. S. 	Gen. 	Acct. 	Off., 	Trucking 	Regulation: 	Price
Competition 	and Market 	Structure 	in 	the 	Trucking 	Industry, 	8-10
(Feb. 	1987). 	The 	positions 	of 	the 	ICC, 	MCRSC, 	and 	DOJ 	are
discussed 	in 	the 	GAO 	report. 	The GAO 	report 	discusses 	entry
barriers 	in LTL 	trucking, 	the 	most 	significant 	of 	which might 	be
sunk costs 	involved 	in 	providing 	terminals, 	financial 	capital
requirements 	for 	effective 	entry, 	and 	impediments 	to 	entry
imposed by 	state 	regulation, 	and 	concludes 	that 	these 	are
"moderate." 	Id. 	at 	18; 	Diane 	S. 	Owen, 	supra 	note 	7, 	at 	13.
6

trucking 	industry, 	removing 	rate 	and 	entry 	regulation would 	be
unlikely to 	lead 	to 	destructive 	competition. 2o
3. 	Safety.
Next, 	it 	is 	argued 	that 	economic 	regulation must 	be 	retained
to 	maintain 	safety 	standards. 	It 	is 	feared 	that 	carriers 	facing
stiff 	competition in 	rates 	or 	service would 	neglect 	maintenance,
postpone 	replacing vehicles, 	and 	overwork 	drivers. 	(Because
safety 	is 	a 	dimension of 	service 	quality, 	this 	concern could be
an element 	of 	the 	"destructive 	competition" 	argument 	too.)
Studies 	of 	the 	safety effects 	of 	removing 	economic
regulation 	are, 	at 	best, 	inconclusive; 	figures 	are 	cited
apparently 	showing 	that 	deregulation 	led 	to 	more 	older 	trucks 	on
the 	road 	and more 	reported 	accidents 	involving 	truckers, 	but
other 	data 	can be 	cited showing 	that 	deregulation 	has 	not
compromised 	safety.21 	For example, 	a 	California 	legislative
study 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. ,,22 	At 	the 	federal 	level, 	a 	recent 	report 	by 	the 	staff
of 	the 	ICC 	concluded 	that 	economic 	deregulation did 	not
compromise 	safety, 	citing, 	among 	other 	things, 	1990 	DOT 	figures
showing 	that 	the 	fatal 	accident 	rate 	per million miles 	driven 	by
large 	combination 	trucks 	had 	fallen 	by one 	third 	since 	the 	1978-
79 	period. 23
There 	is 	no 	necessary 	relationship 	between economic
regulation 	and 	safety. 	Regulating 	rates 	and entry would 	not
ensure 	that 	profits 	are 	spent 	on 	safe 	operations, 	nor 	would
removing economic 	regulation 	necessarily 	reduce 	expenditures 	on
20 	See A. 	Kahn, 	2 	Economics 	of 	Regulation 	178 	(1971), 	in
which 	the 	author 	states, 	"[D]oes 	trucking 	have 	the 	economic
attributes 	of 	an 	industry 	subject 	to 	destructive 	competition? 	It
would be 	difficult 	to 	find 	one 	less 	qualified."
21 	Diane 	S. 	Owen, 	supra 	note 	7, 	at 	18-21; 	Weinstein 	& Gross,
Transportation 	and 	Economic 	Development: 	The 	Case 	for 	Reform 	of
Trucking Regulation 	in Texas, 	Center 	for 	Enterprising, 	Southern
Methodist 	University, 	Feb. 	1987, 	at 	50-51.
22 	California 	Public 	Utilities 	Commission 	& California
Highway 	Patrol, 	AB 	2678 	Final 	Report 	on Truck 	Safety, 	Joint
Legislative 	Report, 	at 	3 	(NOV. 	1987).
D 	Office of 	Economics 	of 	the 	ICC, 	"The U.S. 	Motor 	Carrier
Industry Long After 	Deregulation", 	March 	1992, 	at 	60-67.
7

safety. 	Addressing 	safety concerns 	directly, 	through 	enforcement
of 	safety regulations, 	may promote 	safety more 	effectively than
addressing 	those 	concerns 	indirectly through economic 	regulation.
4. 	Preserving service to 	small 	communities.
Finally, 	maintaining 	economic 	regulation 	is 	sometimes 	said
to 	be 	required to 	preserve 	service 	to 	small 	communities.
According 	to 	this 	argument, 	motor 	carriers 	will 	find 	it
unprofitable 	to 	serve 	small 	markets, 	unless 	they 	are 	guaranteed,
by 	rate 	and 	entry 	regulation, 	a 	fair 	return on 	investment. 	The
argument 	presumes 	that 	serving 	small 	markets 	is 	inherently 	so
unprofitable 	that 	carriers 	must 	subsidize 	that 	service 	through
high profits 	earned 	in other, 	larger markets, 	which 	can only be
guaranteed by 	protecting them 	from 	competition there.
But 	studies 	of 	the 	actual 	effects 	of 	deregulation 	have 	not
revealed 	any 	significant 	deterioration 	in 	service 	to 	small
communities. 	Surveys 	by 	the 	Department 	of 	Transportation 	found
that 	a 	large majority of 	shippers 	in 	rural 	areas 	reported 	either
no 	change, 	or 	an 	improvement, 	in 	the 	quality 	of 	service 	after
interstate 	trucking was 	partially deregulated. 24 A 1982
Interstate 	Commerce Commission 	study 	found 	that 	federal
deregulation 	had 	resulted 	in 	lower 	prices, 	less 	damage, 	and 	often
more 	service 	options 	for 	shippers 	in 	small 	communities. 25 In 	a
survey 	following 	deregulation of 	intrastate 	trucking 	in Florida,
65 	percent 	of 	respondents 	in 	small 	communities 	expressed 	a
preference 	for 	deregulation, 	while 	30 	percent 	expressed no
preference. 26 And 	a 	study of 	the 	Texas 	trucking market
concluded 	that 	small 	Texas 	communities 	would 	not 	lose 	service 	in
a 	deregulated 	environment 	because common carriers 	have 	found 	such
service 	to 	be 	profitable. 27 Thus 	experience 	does 	not 	confirm
24 	See 	U.S. 	Dept. 	of 	Transportation, 	Third 	Follow-Up 	Study
of 	Shipper-Receiver Mode 	Choice 	in 	Selected Rural 	Communities,
1982-3 	(1986); 	Fourth 	Follow-Up 	Study of 	Shipper-Receiver Mode
Choice 	in 	Selected Rural 	Communities, 	1984-5 	(1986).
~ 	Interstate Commerce Commission, 	Small 	Community 	Service
Study 	(1982).
26 	Beilock 	& Freeman, 	Motor 	Carrier 	Deregulation 	in 	Florida,
14 	Growth 	and Change 	31-41 	(1983).
27 	Pustay, 	Interstate 	Motor 	Carrier Regulation 	in Texas,
Logistics 	and 	Transportation Review, 	vol. 	19, 	no. 	2 	(1984),
gyoted 	in Weinstein 	& Gross, 	supra 	note 	20, 	at 	49. 	The 	study
found 	willingness 	to 	serve 	small 	communities 	evidenced 	by
(continued ... )
8

the 	prediction that 	deregulation will 	impair 	service 	to 	small
communities.
B. 	Effects 	of 	regulation.
A comprehensive 	study of 	the 	impact 	of 	state 	trucking
regulation 	by 	the 	Department 	of 	Transportation 	found 	that 	state
trucking 	regulations 	impose 	annual 	costs 	on 	the 	economy, 	in 	the
form 	of 	higher 	trucking 	rates, 	of 	approximately 	$2.8 	billion
(1988 	dollars).28 	This 	study allows 	some 	comparison between
states 	that 	have 	retained economic 	regulation 	and 	states 	that
have 	relaxed or 	eliminated regulation of 	rate 	levels 	and made 	it
easier 	for 	new companies 	to 	enter 	and compete. 	The 	study
estimates 	the 	costs 	of 	state-level 	trucking 	regulations 	by
comparing deregulated 	interstate 	rates 	with 	regulated 	intrastate
rates. 	The 	study's 	methods 	estimated 	costs 	for 	many 	states
individually, 	but 	not 	for 	Michigan, 	which was 	included 	in 	a 	group
with 	Wisconsin, 	Indiana, 	and 	Ohio; 	for 	those 	four 	together, 	the
annual 	economic 	costs 	of 	trucking 	regulation were 	estimated 	to 	be
$171 	million.
Several 	states 	have 	reduced 	or eliminated economic
regulation. 	Their 	experiences 	attest 	to 	the 	benefits 	to
consumers 	that 	can 	follow. 	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. 29 The 	result 	was 	lower 	rates 	with 	no
loss 	in 	service. 30 In New 	Jersey, 	a 	study concluded 	that
27 ( .•. continued)
individual 	entry petitions 	for 	common carrier 	operating 	authority
and 	a 	resale 	market 	for 	existing 	authority, 	suggesting that
carriers 	would provide 	the 	service voluntarily, 	"even 	in 	the
absence 	of 	regulation."
28 W. 	Bruce 	Allen et 	al., 	The 	Impact 	of 	State 	Economic
Regulation 	of 	Motor 	Carriage 	on 	Intrastate 	and 	Interstate
Commerce, 	U.S. 	Dept. 	of 	Transportation, 	May 	1990, 	at 	294.
29 	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.
30 	Simmerson, 	Analysis 	of 	The 	Impact 	of 	Deregulation 	of 	the
General 	Freight 	Trucking 	Industry, 	at 	20-21, 	Cal. 	Pub. 	Utile
Comm'n, 	Investigation No. 	84-05-048 	(Aug. 	10, 	1984) 	(based upon
survey by CPUC 	of 	239 	general 	freight 	carriers 	and 	survey by
( continued ... )
9

deregulation worked well. 31 Shippers 	were 	satisfied with 	the
available 	service, 	rates 	were 	about 	ten percent 	lower 	than 	they
would 	have 	been under 	regulation, 	and 	intrastate 	carriers
prospered. 32
In 	Florida, 	deregulation came 	so 	quickly 	that 	truckers 	and
shippers 	had no 	opportunity to 	prepare. 	Nonetheless, 	one 	study
found 	that, 	a 	year 	after deregulation, 	88 	percent 	of 	shippers
supported 	it, 	with most 	finding 	that 	service 	levels 	remained
constant 	and that 	rate 	fluctuations 	had posed no 	difficulties;
indeed, 	even 	49 	percent 	of 	truckers 	supported deregulation. 33 A
DOT 	study34 	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 	rates 	down. 	And 	an economic 	study 	found
that 	deregulation 	led 	to 	a 	15 	percent 	average 	reduction 	in motor
carrier 	rates. 35
30 ( ... continued)
California 	State 	University, 	Hayward, 	Institute 	of 	Research 	&
Business 	Development 	of 	596 	shippers.)
31 	Allen, 	Lonergan 	& Plane, 	Examination of 	the 	Unregulated
Trucking Experience 	in New 	Jersey, 	U.S. 	Dept. 	of 	Transportation
(July 	1979).
32 Allen, 	Statement 	Before 	the 	National 	Commission 	for 	the
Review 	of 	Anti-Trust Laws 	and 	Procedures 	(January 	22, 	1979).
33 	Freeman, 	A Survey of 	Motor 	Carrier 	Deregulation 	in
Florida: 	One 	Year's 	Experience, 	ICC 	Practitioners 	Journal, 	at 	51
(Nov.-Dec. 	1982).
34 	Statement 	of 	Matthew v. 	Scocozza, 	Assistant 	Secretary 	for
Policy 	and 	International 	Affairs, 	U.S. 	Dept. 	of 	Transportation,
Before 	the 	Subcommittee on Surface 	Transportation, 	U.S. 	House 	of
Representatives 	(June 	20, 	1984).
35 	Blair, 	Kaserman 	& McClave, 	Motor 	Carrier 	Deregulation:
The 	Florida 	Experiment, 	68 	Rev. 	Econ. 	& Stat. 	159 	(1986). 	A
related 	finding 	comes 	from Maryland, 	for 	a 	period 	(1973-74) 	when
interstate 	household 	goods 	movers 	were 	regulated but 	intrastate
movers 	were 	not. 	The 	regulated 	household 	goods 	carriers 	charged
27 	percent 	to 	67 	percent more 	than unregulated carriers 	for
comparable moves. 	Breen, 	Regulation 	and 	Household Moving 	Costs,
Regulation, 	53 	(Sept.-Oct. 	1978). 	At 	the 	federal 	level, 	see 	also
J.S. 	Ying 	and 	T.E. 	Keeler, 	"Pricing 	in 	a 	Deregulated Environment:
( continued ... )
10

In 	sum, 	deregulation of 	intrastate 	trucking 	appears 	not 	to
have 	had 	the 	adverse 	impact 	on competition or 	consumers 	that 	many
critics 	of 	deregulation 	have 	predicted. 	In 	fact, 	deregulation
has 	fostered 	lower 	shipping 	rates 	and 	improved 	service. 	Lower
shipping 	rates 	and 	the 	reduced 	costs 	from 	more 	efficient 	service
would, 	in many 	instances, 	be 	passed through 	to 	consumers 	in 	lower
f · 	1 	d 	. 	36	1na 	goo 	s 	pr1ces.
III. 	Rules 	proposed by the Michigan Public 	Service Commission.
The 	rules 	proposed would 	affect 	new entry by changing
several 	aspects 	of 	the 	applications 	for 	operating 	authority 	and
the 	resulting certificates 	and permits. 	The MPSC 	is 	required 	by
statute 	to 	issue 	a 	certificate 	or permit 	authorizing motor
carrier 	service 	if 	the 	application meets 	several 	requirements. 37
35 ( ••• continued)
The Motor 	Carrier 	Experience," 	RAND 	Journal 	of 	Economics, 	Summer
1991, 	at 	264-273. 	These 	authors 	conclude 	that 	"deregulation has
reduced 	rates 	from 	the 	very beginning 	and 	that 	the 	effect 	has
grown over 	time. 	By 	1983 	reductions 	are 	conservatively 	in 	the
15-20 	percent 	range 	and 	in 	the 	25-35 	percent 	range 	by 	1985."
36 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 	deregulation
provides 	substantial, 	ongoing benefits. 	See Winston et 	ale 	supra
note 	12.
37 	Obtaining a 	certificate 	authorizing motor common carrier
service 	requires 	a 	finding 	of 	fitness 	and 	a 	finding 	that 	the
proposed 	service 	"will 	serve 	a 	useful 	public 	purpose." 	But 	the
certificate will 	not 	be 	issued 	if 	a 	protestant, 	who 	must 	be
another 	carrier performing the 	same 	service 	(or 	offering or
applying 	to 	perform 	it), 	demonstrates 	that 	the 	authority 	"would
create 	excess 	service 	by endangering 	the 	ability of 	the 	present
carriers 	to 	provide 	adequate, 	economical, 	safe, 	and efficient
service." 	Diversion of 	revenue 	or 	traffic 	from 	an 	existing
carrier 	is 	not, 	in 	itself, 	to 	be 	considered 	inconsistent 	with 	the
public 	interest. 	Mich. 	Compo 	L. 	§476.5. 	In making 	its
determination, 	the MPSC 	is 	guided 	by 	the 	twelve 	elements 	of 	the
statutory transportation policy. 	These 	include, 	among 	other
( continued ... )
11

The 	process 	and 	standards 	are 	similar 	to 	those 	required by
federal 	law 	for 	interstate 	authority.38 	The 	statute 	requires
that 	the 	application contain certain 	information 	about 	the
applicant, 	but 	does 	not 	specify how much 	detail 	must 	be 	included
about 	the 	proposed 	service. 	The 	proposed rules 	concern 	that
degree 	of 	detail, 	both 	in 	the 	application 	and 	in 	the 	resulting
authority.
The MPSC's 	goals 	are 	to 	lessen 	regulatory 	burdens, 	improve
safety, 	and 	increase 	productivity, 	efficiency, 	and 	competition.
One 	means 	that 	the MPSC 	evidently 	anticipates 	will 	accomplish
these 	goals 	is 	curtailing devices 	that 	may 	have 	been used 	to
prevent 	competition 	from 	new 	entrants. 	Originally, 	the MPSC
suggested 	that 	applicants 	be 	required 	to 	request 	relatively
general 	operating 	authorities, 	specifying a 	few 	generic 	commodity
classifications 	and broad 	territories. 	But 	the MPSC 	now 	fears
that, 	under 	this 	procedure, 	entry might 	actually be 	hampered,
because 	an 	application 	for 	broad 	authority could 	stimulate many
protests, 	which could delay 	or deter 	entry.
Instead, 	the MPSC 	now proposes 	that 	applications 	and
authorities 	be 	relatively 	specific. 	Applications, 	and 	thus
authorities, 	would 	include 	a 	description of 	the 	commodities 	to 	be
37 ( ... continued)
things, 	promoting competitive 	and 	efficient 	service, 	including 	a
variety of 	options 	to 	meet 	changing 	and various 	demands, 	and 	also
providing 	an 	opportunity 	for 	efficiently run motor 	carriers 	to
earn 	adequate 	profits 	and maintaining 	service 	to 	small
communities 	and 	small 	shippers. 	Mich. 	Compo 	L. 	§475.2. 	The
criteria 	and procedures 	for 	obtaining 	a 	permit 	authorizing
contract 	carrier 	service 	are 	similar. 	Mich. 	Compo 	L. 	§§477.2,
477.5a.
38 	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 	lithe
diversion 	of 	revenue 	or 	traffic 	from 	an 	existing 	carrier 	to 	be 	in
and 	of 	itself 	inconsistent 	with 	the 	public 	convenience 	and
necessity. II 	49 	U.S.C. 	§ 	10922 	(b) 	(2). 	We 	understand 	that 	in
practice 	federal 	certificates 	are 	rarely 	denied.
12

carried and of 	the 	complete 	geographic 	area 	to 	be 	served 	(or, 	for
contract 	carriers, 	the 	identity of 	each 	shipper). 	But 	it 	also
proposes 	to 	retain measures 	to 	prevent 	using 	the 	protest
procedures 	for 	anticompetitive 	purposes. 	Although 	certificate
and 	permit 	authority would be 	specific, 	in terms 	of 	commodities
and 	geographic 	areas 	(or, 	for 	contract 	carriers, 	shippers), 	no
further 	restrictions 	would be 	permitted. 	Thus, 	certificates 	or
permits 	could not 	limit 	the 	size 	of 	vehicle 	or 	shipment 	or 	time
of 	service, 	nor 	could they 	contain 	limitations 	aimed 	at
particular plants 	or cities. 	Protests 	anticipating
anticompetitive 	compromises 	would be 	curbed, 	both by prohibiting
restrictions 	such 	as 	these 	and by penalizing 	frivolous 	protests.
In other 	comments 	on motor 	carrier 	regulation, 	the 	staff 	of
the 	FTC 	has 	supported using 	relatively 	broad 	and 	general 	grants
of 	operating authority, 	such 	as 	the MPSC 	had proposed
originally. 	Restricting 	the 	commodities 	and 	territories 	for
which 	authorized carriers 	can operate 	can 	inhibit 	them 	from
responding 	flexibly 	to 	unexpected 	shifts 	in 	shippers' 	needs.
Before 	1980, 	the 	Interstate 	Commerce 	Commission required
interstate 	truckers 	to 	obtain route-specific 	and commodity-
specific 	certificates, 	thus 	imposing a 	regulatory 	structure
similar to 	the MPSC's 	present 	proposal. 	At 	the 	interstate 	level,
these 	restrictive 	entry requirements 	were 	loosened 	by 	the 	Motor
Carrier Act 	of 	1980, 	and 	studies 	suggest 	that 	shippers 	and
consumers 	have 	benefited 	from 	lower 	shipping 	rates 	and more
flexible 	service 	offerings. 4o Studies 	of 	state-level
deregulatory changes 	have 	yielded 	similar results. 41 In 	an
unregulated market, 	public 	demand 	for 	a 	particular 	service 	is
shown through consumers' 	willingness 	to 	pay 	for 	the 	service, 	and
producers 	are 	rewarded with 	higher 	sales 	and 	greater 	profits 	when
they meet 	these 	demands 	efficiently. 	Motor 	carriers 	could meet
them better 	if 	they were 	relatively 	free 	to 	respond 	in 	particular
circumstances. 	We 	believe 	that 	consumers 	and 	shippers 	benefit
most 	when entry 	restrictions 	are 	minimal, 	that 	is, 	when 	operating
authorities 	are 	broad 	and 	general, 	and 	thus 	we 	believe 	that 	the
approach 	in 	the 	MPSC's 	original 	proposal 	would 	benefit 	consumers
and 	shippers 	substantially.
The MPSC's 	concern 	that 	broad 	and 	general 	authorities 	could
spawn 	a 	large 	number of 	protests 	confirms 	the 	importance 	of
39 	See 	comment 	to 	Illinois 	Commerce 	Commission 	(March 	18,
1991).
40 See, 	~, 	Diane 	S. 	Owen 	supra 	note 	7, 	and Winston et 	al.
supra 	note 	12.
41 	See 	the 	discussion 	in 	section 	II.B. 	supra.
13

curtailing 	anticompetitive 	protests 	against 	applications 	from
prospective 	entrants. 	When protests 	are 	not 	so 	curtailed,
incumbent 	carriers 	may use 	their 	right 	to 	protest 	to 	benefit
themselves, 	at 	the 	expense 	of 	shippers 	and consumers, 	by
preventing or 	delaying 	procompetitive 	entry. 	It 	is 	instructive
to 	compare 	the 	MPSC's 	concerns 	to 	experience 	at 	the 	federal
level, 	which suggests 	that 	curtailing 	incumbent 	protests 	is
central 	to 	stimulating procompetitive 	entry. 	In 	the 	late 	1970s,
the 	ICC 	granted 	increasing numbers 	of 	applications 	for 	new
authority, 	but 	did 	not 	curtail 	incumbent 	carriers' 	ability 	to
protest 	new 	applicants. 	Rather, 	to 	diminish 	the 	number 	of
protests, 	the 	ICC 	actually encouraged 	incumbent 	carriers 	to 	work
out 	acceptable 	terms 	with prospective 	entrants 	before 	they
applied 	for 	new 	authority. 	The 	result 	was 	often 	to 	delay 	or
forestall 	entry and 	to 	reduce 	its 	competitive consequences. 42
The 	1980 MCA and 	subsequent 	ICC 	decisions 	have 	now placed a 	heavy
burden on 	incumbents 	who 	protest 	against 	a 	new entrant's
operating 	authority. 	The 	significant 	gains 	to 	shippers 	and
consumers 	following 	the 	MCA 	show 	the 	benefits 	of 	the 	post-1980
approach. 	This 	experience 	suggests 	that 	the MPSC 	should 	give
serious 	consideration to 	the 	broad-authorities 	approach 	it
proposed originally, 	coupled with 	curtailing 	inappropriate
protests.
In comparing the 	existing regulatory 	structure, 	the 	MPSC's
original 	proposal, 	and 	the 	MPSC's 	current 	proposal, 	we 	believe
the 	MPSC's 	original 	proposal 	to 	be 	superior. 	Still, 	we 	do 	not
recommend 	against 	the 	current proposal 	because, 	relative 	to 	the
42 According 	to 	a 	report 	prepared 	for 	the 	Department 	of
Transportation,
The 	overall 	conclusion 	is 	that 	although 	a 	large 	number
of 	new 	authorities 	are 	being 	granted 	under 	the 	new 	ICC
entry procedures, 	their competitive 	impact 	is
negligible. 	The 	authorized 	services 	are 	narrowly
restricted 	in 	several 	respects, 	such 	as 	territorial
scope, 	commodities, 	vehicles, 	interlining with other
modes 	of 	shipment, 	and 	other 	operating 	restrictions.
Designed 	to 	avert 	or eliminate 	possible 	protest, 	these
operating 	restrictions 	result 	in new 	entry which
creates 	a 	minimal 	increase 	in competition with existing
carriers, 	and 	a 	minimal 	increase 	in 	the 	choice 	among
carriers 	and 	types 	of 	service 	available 	to 	shippers.
Department 	of 	Transportation Contract 	No. 	DOT-OS-80047, 	"New
Entry 	into 	the 	Regulated Motor Carrier 	Industry," 	prepared 	for
DOT 	by 	Sobotka 	& Co., 	Inc. 	and Mandex, 	Inc. 	(December 	19, 	1979),
pp. 	5-6.
14

status 	quo, 	it would 	increase 	the 	prospects 	for 	procompetitive
entry. 	Further, 	it 	is 	possible 	that, 	in Michigan's 	particular
statutory and 	regulatory 	setting, 	a 	combination of 	specific
authorities 	and 	limited protests 	may 	result 	in 	greater 	carrier
flexibility 	and more 	competitive 	entry 	than 	the 	alternative 	of
general 	authorities 	facing 	constant 	protests. 	Whether 	that
proves 	to 	be 	true 	will 	depend 	in part 	on whether 	the 	measures 	to
curb 	anticompetitive 	protest 	activity 	accomplish 	that 	goal.
Under 	the 	MPSC's 	current 	proposal, 	authorities 	would 	be
geographically 	limited 	and commodity 	specific, 	but 	they 	could 	not
include 	some 	of 	the 	kinds 	of 	operating restrictions 	that 	the 	ICC
once 	encouraged in order 	to 	minimize 	protests. 	If 	protests
against 	applications 	for 	limited authorities 	lead 	to 	the 	same
kinds 	of 	delays 	and procedural 	complications 	as 	they would
against 	broader 	ones, 	the MPSC 	might 	wish 	to 	consider 	returning
t 	· 	.. 	1 	1 	43	
o 	~ts 	or~g~na 	proposa 	.
IV. 	Conclusion.
The 	trucking 	industry 	has 	been 	partially deregulated 	at 	the
federal 	level 	and 	in 	a 	number 	of 	states. 	Arguments 	typically
advanced 	against 	deregulation 	appear 	largely unfounded. 	Instead,
deregulation 	has 	brought 	lower 	prices 	and 	in many 	instances
better 	quality 	service 	to 	shippers. 	In particular, 	relaxing
regulations 	that 	impede market 	entry 	and 	that 	limit 	rate
flexibility 	has 	benefited consumers 	and 	competition.
The
may make
easier.
would 	be
rules 	that 	have 	been proposed 	for 	adoption 	by 	the MPSC
entry 	into 	the 	intrastate 	trucking 	industry 	in Michigan
We 	agree 	that 	consumers 	and 	competition 	in Michigan
best 	served 	if 	obstacles 	to 	entry could be 	reduced.
We 	appreciate 	this 	opportunity 	to 	comment.
43 	Even 	if 	protests 	against 	applications 	for 	limited
authorities 	prove 	to 	be 	relatively 	rare, 	the MPSC 	might 	still
wish 	to 	consider 	granting 	broader 	authorities, 	to 	the 	extent 	that
the 	rarity 	of 	protests 	indicates 	that 	the 	regulations 	designed 	to
curb 	anticompetitive 	protests 	were 	effective.
15