merce Commission in one of its investigations, the Commission saying:

6

"It might be manifestly unfair to select a single advantageous line and make that the standard. We have seen that grain can be transported under actual conditions by the Lake Shore and the New York Central Railroads from Chicago to New York at a cost less than that by most other routes. It would be hardly just to these other routes to compel the putting in of a rate upon that line which was reasonable with respect to it alone and which had no reference to its competitors. Upon the other hand, it would be equally unfair to the public if the most expensive line were made the standard. The Southern Railway carries grain to some extent to Norfolk, Virginia. The distance is fully as great; and the rate less than to New York. Its operation is expensive; its tonnage comparatively light; its net earnings per mile only about $1,700. A rate to the seaboard which upon any fair basis of compensation to investment would be reasonable for that company would be extravagantly high for the trunk lines. To permit such a rate would be to impose upon the general public the payment of an exorbitant charge."

§ 535. Competition not a ground for raising rates.

There are occasional cases where a road has urged the presence of competition as a ground for raising rates. To put one case in the language of the Interstate Commerce Commission which passed upon it: "Previous to the summer of 1887, grain and other freights destined to Portland from points further east, including Pullman, passed over the lines of the Oregon Railway & Navigation Company. In 1887 and 1888 the Northern Pacific Railroad Company extended its lines west to Tacoma, thence to Portland, and east to Pullman and other points in the grain growing region in southeastern Washington, and over its lines so

6 Re Proposed Advances in Freight Rates, 9 I. C. C. Rep. 382, 425 (1902). 7 Morrell v. Union Pacific Ry., 8 Int. Com. Rep. 181, 6 I. C. C. Rep. 121 (1893).

extended the Northern Pacific Company took from Pullman and other points a considerable part of the wheat and other freights which would otherwise have been carried over the road of the

Oregon Railway & Navigation Company. The defendants urge

this diversion of Pullman and other traffic from their lines in jusification of higher transportation charges than would be reasonable if there was no competition for Pullman business. Competition, or a division of business as the result of building a second road where previously but one existed, should justify lower rather than higher charges."

The conclusion of the Commission is undoubtedly the proper way of dealing with such a case, but the reason is not quite obvious. It is plain that there is always some waste in all competition which makes a certain additional cost to be borne by the traffic because of the additional fixed charges by reason of unnecessary duplication of plant. But more than this, perhaps, is the increased cost of transportation by reason of decrease in the volume of traffic, consequent upon the division of the business among the competing lines. And yet the principle of value of the service to the shipper seems to come into play here; for the service is worth no more to the shipper whether there be one line or three.

§ 536. Absence of competition does not justify increase in

rates.

To the extent that competition becomes more remote the power to raise rates to any amount that the traffic will bear increases until a point is reached where there is no virtual competition and then that power becomes absolute; but as has been seen already in this chapter, the public needs the protection of the law of the land in this situation, for the economic limitation leaves scope for gross oppression. It is therefore plain law that the absence of competition does not justify an increase in rates. The elimination of railroad competition by the aggrega

tion of large systems has been the characteristic fact in railroad history during the last twenty-five years; and indeed within the last ten years there has been a further extra-legal consolidation of many of these systems by communities of interest, until today there are a comparatively few groups.

"Such unification of railway control permits advances in rates and a maintenance of rates which has never before been possible. If carriers are entitled to larger returns, these increases are proper, and should be permitted; otherwise they should be checked. It cannot be accepted without careful consideration that all this vast increase in traffic, all these notable economies in railway operation are to result in the permanent imposition of higher transportation charges."

998

§ 537. Competition justifies differences in passenger fares only to a certain extent.

Competition dictates particular rates in passenger schedules to a certain extent, but the differences between stations by this process are not made glaring. It is true that between competitive points fares are kept down, but this tends to shrink the whole schedule relating to intermediate stations. Even the most extreme cases are usually those where the long haul between competitive points is charged relatively less than the short haul, or in some cases where the short haul is made as high as the long haul; but if a railroad attempted to charge more for a short haul than for a long haul it would hardly be possible to make the public accept a difference of this sort. The general operation of competition upon passenger fares is to keep all down to a lower level. The matter of joint through rates, discussed at another place, gives more scope to the doctrine that particular rates may be lowered to meet competition. Thus the part of a through passenger rate apportioned to one of several railroads as its share may often be less than the rate which that railroad

8 Re Proposed Advances of Freight Rates, 9 I. C. C. Rep. 382, 437 (1902).

makes between its own termini to its own passengers; as these joint through rates may be reduced to meet competition this difference is justified.

TOPIC FRATES DESIGNED TO EQUALIZE ADVANTAGES.

8538. Limited operation of the principle of equalization at law.

This topic as to the limitations placed by the law upon making rates designed to equalize advantages is again one that will receive attention later when the construction to be placed upon statutory provisions forbidding local discrimintions is brought up. But it seems appropriate to point out in this place that it is a principle in rate-making subject to all of the limitations which have been brought out in this chapter, and that it has therefore a very limited operation. However much this theory may have appealed to some economists who have applied their theories of what is for the best interests of society to the railroad problem, it has very little weight with the lawyers who have had to do with the question.1

"It is not the duty of a carrier to regulate markets. If by reason of competition in transportation or the condition of markets a carrier sees fit to move traffic at very low rates in order to participate in the business, that may be done and often is done, but that is a very different matter from compelling it to reduce all its rates to equalize competition between shippers from different fields of supply and by different and unrelated routes."

1 See §§ 486, 487, supra.

2 Schoonmaker, Com. in Rice v. Western N. Y. & Pa. R. R., 2 Int. Com. Rep. 298 (1888).

§ 539. Relative rates need not be adjusted from a commercial standpoint.

cess.

It is sometimes maintained by a shipper of one product which is competitive with another product that the rates should be adjusted so as to equalize the standing of the competitors. This has been argued before the Interstate Commerce Commission with great insistence several times, but never with real sucThus in one case 3 the contention was made that the rates upon live stock and dressed beef should be so adjusted that a packer in one part of the country might compete upon equal terms with a packer in another part. The commission in its opinion pointed out that this was not a basis upon which the carrier could be compelled to make rates, if indeed the railroad ought ever to act upon such a principle to any extent.

"It is evident, therefore that relative rates cannot be adjusted from a purely commercial standpoint. In saying this it is not to be understood that the increased value of the product is not legitimately to be taken into account in fixing the rate, which is altogether a different proposition from that advanced by the complainants that the rates should be such as to equalize the standing of different producers in the business in the respective markets of the country.

"We are of opinion that in the fixing of relative rates upon articles strictly competitive, as these are, the proper relation should be determined from the cost of the service, and if the difference in this respect between two competitive articles can be ascertained, such rate should be fixed for each as corresponds to the cost of service. This is fair to the carrier, and we believe the manufacturer has a right to demand of the companies that such a relation of rates as to these articles should be maintained."

3 Squire v. Michigan Central Ry., 3 Int. Com. Rep. 315, 4 I. C. C. Rep. 611 (1891).