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Mark, my responses to your questions: 1. Each railroad had total and unrestricted right to set its local rates at any level, subject only to regulatory review for "unreasonableness." (The latter point is not insignificant, but wasn't a huge factor in most situations, given competitive realities.) 2. The "flag-out" applied to the entire through-rate, holding down the rate for all participant lines in the route. Most rates were "through," not combinations. 3. Bear in mind that a universal rate structure was pre-existent. No matter what the commodity, no matter the origin and destination, a rate existed. In fact many rate levels often existed, the highest being so-called "class rates," prescribed by the ICC. Class rates were so high and non-competitive that they moved very little traffic, so that when, for example, a new manufacturer of widgets opened on rail, competitive rates had to be established if traffic was to move by rail. Now to your question. Assume a rate structure had been in place for several years for our widget maker. The general rate increases had been applied regularly, to the point that the widget maker threatened to buy his own trucks and divert the tonnage to highway. The serving railroad took the threat seriously and proposed lower rates. Assume that all other railroads viewed the threat as empty. The serving railroad could take "independent action" to lower rates on local traffic, but could not force connecting lines to join on through-rates. "High man wins." Let's now assume, though, that the serving line closely monitored the private truck threat and concluded that the recently proposed 12% general rate increase would divert the traffic. The line announced that the general rate increase would not apply on widgets originating on its line to any destination. The increase would not apply via any local or interline route. "Low man wins." 4. Through rates were pervasive for almost all commodities in and between all territories. There were some anomalies. Grain was one. Some intermodal. The railroad rate stucture was notoriously complex, even with through rates and routes. Combinations compounded the problem, both for shippers and railroad revenue accounting. Talk about "green eyeshades!" 5. Typically, the ICC required junctions/gateways to remain "open" post-merger. This was a bit murky, for it didn't really prescribe the actual rate levels that had to be maintained. "Routing" provisions were an art in their own right, often governed by general routing tariffs. What the ICC prohibited was wholesale cancellation of existing rates and routing via pre-existing junctions and gateways. But it didn't often force a merged carrier to make all new rates apply via the old junctions. So time eroded the protection. 6. Congress wrote the Interstate Commerce Act and the ICC administered it. So far as I know, there never was an explicit part of the Act, nor of ICC policy, that attempted to parcel out market share among railroads. The "public interest" in having railroad service did, however, lead to many policy decisions that preserved service long after normal economic forces would have brought about merger or abandonment. The ICC long viewed its mandate from Congress to be a micro-manager of the railroad industry, ignoring economic reality in its quest to have the "public interest" served. That was the legacy of Teddy Roosevelt. (Read "Enterprise Denied" by Albro Martin, for a full treatment of this issue.) The Transportation Act of 1958 did not change the ICC's role vis a vis mergers and abandonments, leading to the UP-CRIP debacle, etc. The Staggers Act did change that role, especially with regard to abandonments and the creation of short-lines. In my opinion, this is the great achievement of Staggers.
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