Concluding Observations

Abstract

The movement towards regulatory reform in the late 1970s and early 1980s was motivated in part by the notion that consumer welfare would be enhanced by allowing market forces to influence prices, productivity and service quality. The chapter by Grimm and Windle presents evidence suggesting that by encouraging greater competition in the transportation and telecommunication industries, regulatory reform helped create a business environment depicted by competitive pricing, and improved productivity and service quality. These product market outcomes are most evident in the trucking industry. Grimm and Windle argue that the effectiveness of regulatory reform in this industry is mostly due to the relatively low barriers to entry that allowed for the dramatic influx of nonunion competitors in most segments of this industry. Barriers to entry that were relatively higher than that found in trucking precluded other transportation industries from facing hyper-competition. Nonetheless, Grimm and Windle report evidence of stepped-up competition and improved market performance in these industries following regulatory reform. They observe that even though mergers and consolidation created a more concentrated market structure in the railroad industry, carriers were able to achieve financial stability by abandoning nonprofitable lines and by setting prices that allowed them to successfully compete for customers. Grimm and Windle also observe that in response to increased pressure on prices from new rivals, airline carriers switched from nonprice to price competition. Most successful airline carriers also adopted the productivity enhancing hub-and-spoke distribution technique. Lastly, they report that the competitive effects of regulatory reform were even evident in the telecommunication industry. For instance, while divestiture of this industry’s major carrier still prohibited entry into regional markets, competition did arise in the long -distance and telecommunication equipment manufacturing sector.