Railroads: Rates and RegulationsRipley, William Zebina
History
Railroads: Rates and Regulations
Ripley, William Zebina
Railroads -- Freight -- Rates -- United States; Railroads and state -- United States
Analyzing the main question two propositions are certain. Firstly,
the long line can never charge _more_ than the short line; whence it
follows that as the short line reduces its rate, the long one must
accept that rate as made; and, secondly, the long line, costing more
to operate, is, in the process of reduction of rates, bound to be
the first to strike the bed-rock of cost incident to that particular
service. To go below this point of particular cost would obviously be
indefensible from every point of view. The general rule, then, is that
"the short line rules the rate." This is accepted widely in practice,
as for example throughout trunk line territory and between the
so-called Missouri-Mississippi river points, where the short line from
Hannibal to St. Joseph determines all rates by longer routes.[243] But
the problem yet remains unsolved. The long line may never be able to
charge _more_ than the short line--may it, however, charge _less_ under
certain conditions? The moment it is enabled to do so, the long line
and not the short line, for the moment, "controls the rate." If, now,
we use the technically proper terms, the question becomes this: Under
what circumstances is average cost of service in railway competition
set aside in favor of other considerations; or, otherwise stated, when
may a line, operated under a disability as to cost, properly give
a lower rate than its competitors notwithstanding? Does disability
justify a handicap or the reverse? This was the form which the question
assumed in the notable Milk Rate case: as to whether the weaker lines
in respect of distance or grades should be allowed compensation
therefor by permission to charge higher rates.
One of the common instances of rate control by a line operating
under a disability as to distance or normal cost is the competition
of a bankrupt with a solvent property. The "roundabout" line, like
the Erie or the old New York and New England, having repudiated its
fixed charges, undoubtedly "makes" the rate which the other roads must
meet or lose the traffic. Usually they prefer to absorb or control
it otherwise, financially, thus substituting monopoly for a ruinous
condition of competition. Yet such instances resolve themselves,
evidently, into questions of relative cost of operation after all. The
bankrupt road holds the whip hand, because, having repudiated its fixed
charges, its average costs of operation are correspondingly reduced.
The validity of operating cost as a basis of charges is surely not
shaken by this exceptional case.
Public-domain text, read in full here on John Shaqi.
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