Deregulation and the Cost of Trucking.

Suppose the government initially limits the number of trucking firms that can haul freight. The market for truck freight is served by a single firm that produces five million ton-miles of service per year, where one tonmile is the hauling of one ton of freight one mile. The newly elected governor has proposed that other firms be allowed to enter the market.

At a public hearing on the issue of eliminating the entry restrictions, the manager of the existing firm issued a grim warning:

If you allow entry into the market, four or five firms will enter, and the unit cost of truck freight will at least triple.

There are big economies of scale in trucking services, so a single large firm is much more cost-efficient than several small firms would be.

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