Antitrust Law and Policy in Transportation: Monopoly is the Name of the Game

This year (1987), the United States celebrates its centennial of economic regulation of transportation. The establishment of our nation's first independent regulatory agency, the Interstate Commerce Commission (ICC), in 1887, was motivated largely by the need to shield the public against the monopoly abuses of the railroads. Only three years later, Congress expanded its arsenal of statutory weapons against monopolies and other anticompetitive activities with the promulgation of the Sherman Act of 1890. Antitrust laws were established to preserve the competitiveness of the marketplace by thwarting concentration of market power and thereby promoting efficiency in the allocation of resources. If market failure was the catalyst for the establishment of the transportation regulatory agencies-the ICC in 1887, and the Civil Aeronautics Board (CAB) in 1938-regulatory failure would become the catalyst for their demise. Beginning in the late 1970's, Congress promulgated a series of comprehensive reform bills designed to inject increased levels of competition into the transportation industry. Presidents Carter and Reagan followed suit by appointing individuals vehemently dedicated to deregulation to the transportation regulatory agencies. These agencies-the ICC, the CAB, and the Department of Transportation (DOT)-accepted their new mission with zeal, often exceeding their less ambitious statutory authorizations. It was thought that enhanced competition would give consumers of air, rail and motor carrier services the range of price and service options dictated by demand, as reflected in votes of dollar approval in the marketplace. Commentators had blamed regulatory failure for the inefficiencies of the industry, excessive service competition, and inadequate pricing competition. In theory, the new range of consumer choices was to produce an allocation of resources superior to that which existed under regulation. In the short run, deregulation has made the air and motor carriers highly competitive. Even the rail industry has tended to price its services competitively when necessary to meet the inroads made by its rival modes, the trucks and barges. Thus, deregulation has meant a more attractive pricing structure for many consumers and shippers, particularly in intensely competitive markets such as heavily traveled corridors or large volume movements. The profit margins of many air and motor carriers, however, have been squeezed (while railroads have become more profitable), forcing management to enhance efficiency, increase productivity, and lower costs, or face the Darwinian grave of bankruptcy. Although deregulation has lowered entry barriers into the airline and motor carrier industries, the stress on the small and medium-size competitors has meant bankruptcy for many. Predatory practices by their larger competitors have allegedly contributed to this trend. This article assesses the principal legal and economic developments since deregulation began from an antitrust and public policy perspective. Major mergers of airlines now must be approved by the DOT, while those in the rail and motor carrier industries must be approved by the ICC. Despite statutory admonitions that suggest caution, with but two exceptions, the agencies have been exceedingly generous in their willingness to acquiesce in these anticompetitive endeavors. Each decision has been a step toward increased concentration. Most new entrants have failed to achieve significant market shares, and even those that have, like People Express in the airline industry and Leaseway in the less-than-truckload motor carrier industry, have been forced to retrench. If this trend continues unabated, the resultant monopolies and oligopolies will be the death knell of meaningful competition, perhaps leading to a return to the market problems that preceded regulation. For the regulatory agencies, devotion to deregulation appears to mean not only the destruction of economic (entry and pricing) regulation in all its forms, but the elimination of meaningful antitrust regulation as well. An examination of the major steps taken toward concentration since deregulation became a reality should make this clear.

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