C. A Blueprint for Regulatory Reform
Its arguably undue confidence in concession contracts aside, Regulating Infrastructure does sketch a useful blueprint for regulatory reform. My own regrettably compressed survey of American regulatory policy suggests that Professor Gomez-Ibanez's tripartite division between private contracts, concession contracts, and discretionary regulation closely tracks existing distinctions within the law of regulated industries. Constructive legal critique begins with careful examination of the weaknesses in each of those strategies; successful, enduring reform demands not only that government avoid regulatory mismatches, but also that government affirmatively match the proper legal tools with regulatory goals. n223
Professor Gomez-Ibanez's private contract model best fits transportation industries. For decades we have known that the operation of transportation systems such as airlines and trucking fleets, as distinct from the construction of transportation platforms, demands relatively modest investment in durable, immobile inputs. As a result, the complete abolition of common carriage, filed tariffs, and even entire regulatory agencies has delivered substantial gains in consumer welfare. Commercial airlines, railroads, and interstate trucking companies were deregulated in all but name by the early 1980s. With minor exceptions, such as the Surface Transportation Board's residual power to approve mergers and to review rates paid by captive shippers whenever such rates exceed 180% of the relevant railroad's variable costs, n224 potentially anticompetitive behavior within American transportation markets is patrolled mostly by antitrust. The slow displacement of common carriage and filed tariffs by contract carriage and negotiated rates has entrusted most legal aspects [*1651] of major transportation industries to private contracts. In almost every respect, airline operations today are governed by contracts between carriers and passengers, right down to frequent flier programs. n225
What this deregulatory model has not produced, and never could have been expected to produce, is a proliferation of numerous, smaller firms in these industries. Deregulation of transportation did not set a goal of perfect competition, but rather perfect contestability. The theory of contestable markets accommodates oligopolistic industrial structure as long as individual firms can freely enter and exit the market with no sunk costs. n226 "Given the character of modern technology," contestability provides "a standard of structure and performance that is more pertinent than pure competition.