Ian Savage (1995). Panzar and Rosse style tests of market structure in the U.S. motor carrier industry. Logistics and Transportation Review 31(2):135-144.
[Manuscript Version]

Analysis of reduced form revenue equations utilizing tests developed by John Panzar and James Rosse indicate that the less-than-truckload (LTL) trucking industry does not have a market structure consistent with long-run perfectly competitive equilibrium.

This means that the trucking industry cannot be modeled as a long-run perfectly competitive equilibrium. However, there is evidence both from the widespread incidence of firms earning negative returns, and our formal test that the market is in disequilibrium. Our analysis therefore gives the ambiguous result that the rejection of long-run perfect competition may be due to either temporary disequilibrium or else the existence of market power.

Readers may favor the latter explanation based on the strength of the rejection of perfect competition in our reduced form revenue equation, and the considerable anecdotal and previous analytical literature. Since deregulation, the larger firms in the LTL segment of the industry have increased their market share, and earned higher returns than smaller firms. Unfortunately, the Panzar and Rosse test is not useful in identifying other common theoretical market structures that might now characterize the industry, such as Cournot oligopoly or monopolistic competition. Other than rejecting the extremes of monopoly and perfect competition, one is not left any the wiser as to the appropriate economic model to build to describe the trucking industry.