The Cross-Subsidization of Rural Areas by ICC-Regulated Trucking Firms

There is a question about whether regulation of rates in the trucking industry has conferred any benefits on the residents of rural areas. If regulation does not achieve a redistribution of income favorable to rural areas, then the failure of a deregulated competitive trucking industry to confer differential benefits on such areas is not a valid argument supporting the existing regulatory system. Commodity rates applicable to much of the truckload traffic appear to be competitively determined, while the class rates do not. Far more rural than nonrural regulated truck shipments are subject to class rates. If class rates are discriminatory and the commodity rates applicable to truckload shipments are competitive, then nonrural shipments cannot be a substantial source for the subsidization of rural traffic. The presence of commodity rate discrimination for rural traffic presupposes some monopoly power and provides the opportunity for enhanced carrier revenues from value-of-service pricing. Although the evidence is less than compelling, it is consistent with a hypothesis founded on conventional maximizing principles and observed market structure characteristics.