Economies of scale after deregulation in LTL trucking: a test case for the survivor technique

Abstract

AbstractEarly critics of motor carrier deregulation believed that the policy was unwise because strong economies of scale would lead to harmful market concentration, particularly in the industry's LTL segment. Using two methodologies, the survivor technique and the trans‐log cost function, this study finds that economies of scale do extend across the entire spectrum of firm sizes in LTL trucking. Long‐run average cost appears to decline mildly and at a diminishing rate with increases in firm size, however, such that any cost advantage for larger firms has been insufficient to eliminate new entry and competition from smaller rivals. As a result, after the first 20 years of deregulation, the corresponding increase in market concentration has also been mild. Moreover, the consistency of results from the two methodologies gives credibility to the survivor technique as an empirical method of identifying economies of scale. Copyright © 2008 John Wiley & Sons, Ltd.