CSSHEGEWISCHIt's interesting to note that everybody blames the bureaucrats for over-regulation and too much red tape when the cowardice of Congress places only vague generalities in the enabling statute because the various Representatives and Senators were afraid of political repercussions. Industry is hardly blameless when their behavior generates enough of a public outcry to demand regulation of some sort. Of course, making money is the only thing that matters in life.
The bureaucrats and their congressional bosses are just two parts of the same organism, and that organism has its own self-interest in simply expanding its size and power. It creates regulations as a way to expand itself whether those regulations are needed or not. It is like a weed that you have to pull out with the roots.
It's interesting to note that everybody blames the bureaucrats for over-regulation and too much red tape when the cowardice of Congress places only vague generalities in the enabling statute because the various Representatives and Senators were afraid of political repercussions. Industry is hardly blameless when their behavior generates enough of a public outcry to demand regulation of some sort. Of course, making money is the only thing that matters in life.
CSSHEGEWISCH Remember that those often unfairly maligned bureaucrats are restricted to administering the statute as written by Congress. If Congress chooses not to update the statutes to meet a changing situation, then there isn't a lot that the agency will be allowed to do to deal with the new situation.
Remember that those often unfairly maligned bureaucrats are restricted to administering the statute as written by Congress. If Congress chooses not to update the statutes to meet a changing situation, then there isn't a lot that the agency will be allowed to do to deal with the new situation.
I don't think the bureaucrats deserve a pass on this one. (Or some other ones.)
It is true that congress was totally out to lunch on this for 60 years or so. But just because the politicians weren't doing their job doesn't mean the ICC commissioners and their staff shouldn't have done their own job.
The laws congress passed were pathetically vague. Rail rates were to be "Just and Reasonable". What the heck does that mean in application? The "Inherent natural advantage" of a mode was to be preserved. Again, what the heck does that mean in application? And if a mode has an "Inherent natural advantage" why would government involvement be required to preserve something that is "Inherent"?
The bureaucrats were given a lot of leeway and a lot of power due to the vagueness of the statues. They had this power without financial accountability. It wasn't their money, or money they were responsible for, that would be lost. If they made a bad economic decision it was of no never mind to them. Their only real worry was taking a wrong step politically. That would get a commissioner in trouble and just maybe he wouldn't get reappointed or reconfirmed at the end of his five year term. (It happened.)
If there ever was an honest justification for government regulation of rail prices (and I am increasingly convinced there never was such justification) it was certainly by-in-large gone by 1967. But, congress did have to get hit over the head with a 2x4 before they dealt with the situation.
Given "The Situation" the bureaucrats should have at least attempted to make informed, well reasoned, economicaly sound decisions. Nothing in the statutes required them to adopt fully allocated (average) rail costs as a floor for rail prices. It was ill-informed, unreasonable and economically unsound to do so. But they did so. They were far from helpless and far from blameless.
daveklepper But if the beurocrats are really doing their job, they will report to both Democratic and Republican senators and congressmen that things are going out of kilter and the country will suffer if there is lack of legislation to correct the bad direction. The ICC should have done this a quarter century before the Staggars Act. That they didn't is because the individuals involved were more intersted in simple job protection or just plain stupidity. If John Kneiling were alive he would agree 100% with this evaluation.
But if the beurocrats are really doing their job, they will report to both Democratic and Republican senators and congressmen that things are going out of kilter and the country will suffer if there is lack of legislation to correct the bad direction. The ICC should have done this a quarter century before the Staggars Act. That they didn't is because the individuals involved were more intersted in simple job protection or just plain stupidity. If John Kneiling were alive he would agree 100% with this evaluation.
Oh I have nothing against bureaucrats. Somebody has to do it. It is just that you don’t want too many of them. They multiply like fruit flies. And they are not neutral in their effect. They live to regulate us.
And there is still imbalance in transportation with long distance trucking not paying its full share of costs to society. But state-supported assistance to shortline and regional railroads is making up some of this difference. But thsi represents errosion of a pure free-market economy.
But also, suppose instead of buying and building T-1's and Q-2's, the PRR had instead attempted to dieselize as quickly as possible. And based on the very successful tour of the FT and its wartime success on the Santa Fe. Southern, and Boston and Maine, decided to order as many F3's and F7's and then GP-7's as EMD was willing to make for them as quickly as possible. Just suppose.
Greyhounds,
Your explanation makes a lot of sense, and it really is not a complex explanation. I can see how things could have just developed as an evolution of beliefs and practices without anybody understanding or even questioning the overall effect. As the regulatory mission became entrenched deeper and deeper into an ever expanding bureaucracy, that mission steered itself in a straight line. And when the game changed, nobody noticed or could make the mission change directions. It seems to be the fundamental result of government bureaucracy, which is free to act without any market forces bearing upon it.
Bucyrus greyhounds, Do you have any ideas that would explain why the government involved itself in this case? Were they trying to level the playing field? Or was one of the players trying to get them to tilt the playing field in somebody's favor?
greyhounds,
Do you have any ideas that would explain why the government involved itself in this case? Were they trying to level the playing field? Or was one of the players trying to get them to tilt the playing field in somebody's favor?
I wanted to ponder this one for a while.
My idea is that the people doing the intervention, the bureaucrats and lawyers, were simply "To the Manner Born." (That's the correct original phrase. Not "To the Manor Born.")
They were literally following the usual manner of handling a complaint about a railroad freight rate. It had been that way for decades and they never even thought to ask themselves why they were doing what they were doing. Even though what they were doing made no sense whatsoever to anyone with even a slight understanding of economics.
When congress granted the regulators power over minimum rail rates its reasonably good intention was to protect weaker railroads, with higher cost structures, from intra railroad competition. At that time, 1920, communities were almost totally dependent on their rail service. Congress may have been attempting to establish universal rail service as it did establish universal phone service. This universal service requires cross-subsidies to reach high cost customers, such as those in out of the way places on high unit cost rail (or phone) lines. Effective cross-subsidization is only possible with great monopoly power. Otherwise the customers being charged extra to provide the subsidization will find another supplier who isn't making them help pay for someone elses service.
Congress could, and did, grant this monopoly power to AT&T. But it had no ability to grant such power to a railroad. It could pass a law saying the railroad had a monopoly, but passing a law and getting something done are two very different things. (You could buy your own telephone, but it wasn't going to do you any good without the AT&T network. You could also buy your own truck to avoid the government imposed rail cross-subsidy "tax". That would do you some good because you could access the road network.)
The whole railroad universal service with coss-subsidies concept was blown apart by the advent of motor freight in the 1920s. Shippers could easily, and increasingly, avoid the government imposed rail cross-subsidy "tax" by using trucks. Water transport could combine with the new motor freight to reach out beyond the water to greatly extend its competitive reach. The railroads had no great monopoly power. But the law and the regulations were set up as if they did.
The advent of motor transport changed the transportation world. Unfortunately, no one in Washington, DC seems to have taken much notice of this. The DC lawyers and regulators went through the motions as they always had done even though the world had changed. While congress slept or was bought off.
So anyway, a 1920 law designed to protect weak railroads from the competition of stronger railroads was misuesed in 1967 by the regulators to put one final nail in the coffin of a former strong railroad, the Pennsylvania. After all, they were to that manner born.
Most people will not ask themselves: "Why are we doing this? Does this make sense anymore?" That's one reason why government economic regulation of rail transport needs to be mimimized if not eliminated. Such regulation is often but a hammer used to silence the very important person asking "Why?".
The impression I had of the ICC that I got from the book The Men Who Loved Trains was this.
The ICC was a very political animal responding more to congressional inputs than anything else.
It was much easier to keep someone else from doing something than to try to do something. Worse still because a lot of the trucking companies were local operations they knew their congressman. (sometimes quite well).
Rgds IGN
Excerpts from the Transportation Act, 1920
Sec. 208. (a) All rates, fares, and charges, and all classifications, regulations, and practices, in any wise changing, affecting, or determining, any part of the aggregate of rates, fares, or charges, or the value of the service rendered, which on February 29,1920, are in effect on the lines of carriers subject to the Interstate Commerce Act, shall continue in force and effect until thereafter changed by State or Federal authority, respectively, or pursuant to authority of law; but prior to September 1, 1920, no such rate, fare, or charge shall be reduced, and no such classification, regulation, or practice shall be changed in such manner as to reduce any such rate, fare, or charge, unless such reduction or change is approved by the Commission.
Sec. 500. It is hereby declared to be the policy of Congress to promote, encourage, and develop water transportation, service, and facilities in connection with the commerce of the United States, and to foster and preserve in full vigor both rail and water transportation.
Excerpt from booklet by the Guaranty Trust Company of New York (1920)
http://books.google.com/books?id=S8kOAQAAMAAJ&pg=PA4
Prior Laws Pertaining to Federal Regulation
The Federal regulation of railroads in the United States virtually began with the enactment in 1887 of the Interstate Commerce Act, creating an Interstate Commerce Commission of five members to be appointed by the President with the advice and by the consent of the Senate. The Act applied to interstate and foreign freight and passenger traffic carried by railroads, or in the case of continuous shipment, by rail and water, but it did not apply to intrastate traffic, nor to interstate or foreign traffic carried entirely by water.
The Interstate Commerce Commission was vested with important powers with respect to the transportation systems of the nation. Among other things, the Act prohibited pooling, and all unjust personal discriminations in the form of special rates, rebates or otherwise, forbade discriminations between localities, commodities and connecting lines, and required the provision of reasonable and equal facilities for the interchange of traffic. The Act also provided that all charges should be just and reasonable, and required rates and fares to be printed and posted for public inspection.
Although the provisions of the law appeared to be sufficiently comprehensive, it never accomplished the results anticipated by its framers, partly because, under the law, the orders of the Interstate Commerce Commission were not binding upon the railroads unless a Circuit Court of the United States compelled obedience, but chiefly because the courts so interpreted its main provisions as greatly to limit its scope. It was intended that the functions of the courts in connection with investigations by the Commission were to be confined to reviewing questions of law which might be involved in the enforcement of the Commission's orders. The courts, however, went much further than this and permitted the introduction of evidence which had not been submitted to the Commission. This practice naturally reduced the effectiveness of the Commission as an investigating body, inasmuch as it led to much duplication of effort, caused long delays in adjudication, and greatly increased the expense of litigation, thereby discouraging the submission of grievances to the Commission.
In spite of the failure of the law to accomplish the ends most desired, many beneficial results came from the legislation, among which may be mentioned publicity of rates, reduction of the number of freight classifications, and a better adjustment of charges, as between different shippers, different localities, and different commodities.
The next important step in the development of Government regulation of interstate commerce was the enactment of the Elkins Act of February 19, 1903, which made corporations as well as their agents liable for violation of laws relating to interstate commerce, and made deviation from the published schedules of rates the sole test of discrimination. The Expediting Act of 1903 gave all cases pending in a Circuit Court of the United States and brought under the Interstate Commerce Act, the Sherman Anti-trust Act of 1890, or any other acts having a like purpose, in which the United States Government was the complainant, precedence over all other cases.
In 1906 the Hepburn Amendment was enacted, which greatly increased the powers of the Interstate Commerce Commission, and extended the scope of the original act, making it applicable to express companies, sleeping-car companies and pipe lines for transporting oil or other commodities except water and gas, and increasing considerably the things included in the terms "railroad" and "transportation." The law specifically invested the Commission with rate-making powers which had been denied to it under the interpretations which the courts had placed on the provisions of the Act of 1887. The prestige of the Commission was also greatly increased by a provision to the effect that all its orders except those for the payment of money should take effect within such reasonable time, not less than 30 days, as the Commission should prescribe. This law also conferred upon the Commission the power to prescribe a uniform system of accounts for railroads engaged in interstate commerce, and contained provisions further discouraging rebating.
The enactment of the Carmack Amendment of 1906 was of great advantage to shippers, since it required the carrier receiving traffic for interstate shipment to issue a bill of lading for such shipment, and made it liable to the lawful holder of the bill for any loss or damage caused by any carrier over whose lines it might pass. The initial carrier was allowed to recover from the carrier on whose lines the damage occured.
In 1910 the powers of the Commission were still further increased by the Mann-Elkins Amendment. Among other things, this Act vested the Commission with authority to suspend new rate schedules proposed by carriers until opportunity had been afforded the Commission to determine by investigation whether the proposed increases were justified.
The Panama Canal Act of August 24, 1912, prohibited any railroad company or other common carrier subject to the Act from owning, leasing, operating, controlling, or having any interest in common carriers by water or any vessel carrying freight or passengers operating through the Panama Canal or elsewhere in competition with such railroad or other carrier. This Act also vested in the Commission the authority to require the connection of rail and water carriers where reasonably practicable; to establish through routes and maximum joint rates over rail and water lines; to establish maximum proportional railroad rates to and from ports; and to order any railway, entering into any arrangements with a carrier by water operating from any port in the United States for handling through business between an interior point therein and a foreign country, to enter into similar arrangements with any or all steamship lines operating from that port to the same foreign country.
There were two important measures affecting the railroads enacted on July 2, 1890, and on October 15, 1914, respectively. The former was the Sherman Anti-Trust Law which made contracts, combinations in the form of a trust or otherwise, or conspiracies in restraint of interstate or foreign trade or commerce illegal. Many illegal combinations were dissolved after the enactment of this law. The Clayton Act forbade all corporations engaged in interstate commerce to acquire stock of another such corporation where the competition might thereby be lessened, commerce restrained in any section, or a monopoly thereby created of any line of commerce. It was expressly provided that the law should not apply to corporations purchasing such stock for investment purposes solely, nor be construed as prohibiting a carrier, through the acquisition of stock, from aiding in the construction of short branch lines, nor prevent the extension of its lines through acquisition of such stock where no substantial competition existed between the purchasing and selling corporations. The Interstate Commerce Commission was vested with authority to compel compliance with those sections of the Clayton Act applicable to common carriers.
Under the Act approved August 29, 1916, the President was empowered to take possession and assume control of any system or systems of transportation and to utilize them to the exclusion, as far as necessary, of all other traffic for the transportation of troops, war material, and equipment, and for needful and desirable purposes connected with the prosecution of the war. Acting under the authority vested in him by this Act, the President on December 26, 1917, issued a proclamation assuming control of all systems of transportation located wholly or in part within the boundaries of the continental United States, such control becoming effective on December 28, 1917.
On March 21, 1918, the Federal Control Act was signed by the President. This Act provided for the operation of the properties of the carriers during the war and for a reasonable time thereafter, not exceeding 21 months from the date of the President's proclamation of the exchange of ratification of the treaty of peace, and for compensation for the use of their properties while under Federal Control.
This legislation was designed only to meet the emergency conditions arising from the war and it was specifically provided therein that it was not to be construed as expressing the future policy of the Government concerning the ownership, control or regulation of the carriers or the method or basis of their capitalization. With the war ended, it became incumbent upon Congress to enact the necessary legislation to bring about the return of the railroads to their original owners and many plans were brought forward, designed to accomplish this result. Among these may be mentioned the plans offered by the railway executives; by the security owners; by the railway brotherhoods, which, under the name of the Plumb Plan, advocated purchase of the railroads by the Government and operation by the employees; by the National Transportation Conference, representing a composite of the ideas of the various interests involved; by the Senate Interstate Commerce Committee, known as the Cummins Bill; and by the Interstate Commerce Commission, known as the Esch Bill.
On December 24, 1919, the President issued a proclamation relinquishing control and operation of the railroads, such relinquishment to be effective at 12:01 a.m. March 1, 1920. The approach of the termination of the period of Federal control emphasized the necessity for immediate action by Congress. As a result, the Senate passed the Cummins Bill and the House passed the Esch Bill, each with numerous changes and amendments. The Conferees of the Senate and House, after considering the two bills, made their report which was approved by both Houses and became a law on February 28, 1920 upon being signed by the President.
This paper gives a good overview of the situation post-Hepburn Act of 1903, focusing on the CEO's and some of the reasons why regulation occurred in the first place. There are many other papers and books on this complex topic.
http://www.thebhc.org/publications/BEHprint/v008/p0061-p0066.pdf
C&NW, CA&E, MILW, CGW and IC fan
Bucyrus,
Short version is that Congress gave the ICC authority to regulate minimum rates in the Transportation Act of 1920. IIRC the court referred to section 15 which required that intermodal regulation "preserve the inhearent advantages of each mode"
When railroad lowered rate to get the traffic back, the truck barge carriers went to the ICC and claimed that they should not be allowed to do that under the law.
The court's finding in this case was that congress intended to prevent the railroads from pricing below fully allocated cost. This was an issue that affected only the railroads since both truck and barge carriers, having virtually no fixed costs, or having an operating ratio of say 98%, did not have the price flexibility of the rails.
In the railroad case, due to the huge fixed cost componennt, the carriers could, and it was economically rational to do so, price as low as variable cost and still retain some contribution to overhead. This rational act is what Congress prohibited.
The practical effect was to shift huge volumes of traffic to other modes since the railroads were prevented by law from meeting the competition. Think of a prize fighter with one hand tied behind his back.
Mac McCulloch
greyhounds The investment dollars needed for rail capacity (and airline capacity) are a precious scarce resource. They should not be wasted. Government price regulation causes such waste. One more time. Why did the dang government need to involve itself in the "Ingot Molds" case?
The investment dollars needed for rail capacity (and airline capacity) are a precious scarce resource. They should not be wasted. Government price regulation causes such waste.
One more time. Why did the dang government need to involve itself in the "Ingot Molds" case?
Yes indeed...times have changed. I'm in the trucking business and I move alot of steel INTO Pittsburgh/Ambridge areas every week.. Usually when I tell people that they quickly correct me: "you mean you ship steel FROM Pittsburgh don't you?".. no not at all..
To Sam1: Thanks for the great history lesson!
Firelock76 Interesting, Sunnylands comment about Pittsburgh. I've been to Pittsburgh twice on business, met and talked with some of the locals. Certainly at one time "Pittsburgh" and "steel" were synonymous, then came the tough environmental laws forcing the mills to either clean up or close. They closed. The result was an economic catastrophe that took the area decades to recover from. Although the area now is virtually smog free and the views from Mount Washington are spectacular, most of the locals I've spoken to aren't sure it was worth it, considering the cost. If anyone from the Pittsburgh area's reading this feel more than free to correct me. Reminds me of something Mike Bednar wrote about in an article about the cement producing areas of Pennsylvania. Cement dust was everywhere, and you could see it at night like a fog around the streetlamps, but nobody cared. To the locals it wasn't cement dust, it was gold dust. It meant jobs and a strong local economy.
Interesting, Sunnylands comment about Pittsburgh. I've been to Pittsburgh twice on business, met and talked with some of the locals. Certainly at one time "Pittsburgh" and "steel" were synonymous, then came the tough environmental laws forcing the mills to either clean up or close. They closed. The result was an economic catastrophe that took the area decades to recover from. Although the area now is virtually smog free and the views from Mount Washington are spectacular, most of the locals I've spoken to aren't sure it was worth it, considering the cost. If anyone from the Pittsburgh area's reading this feel more than free to correct me.
Reminds me of something Mike Bednar wrote about in an article about the cement producing areas of Pennsylvania. Cement dust was everywhere, and you could see it at night like a fog around the streetlamps, but nobody cared. To the locals it wasn't cement dust, it was gold dust. It meant jobs and a strong local economy.
I was reared in Altoona, which is approximately 100 miles east of Pittsburgh. My brother has spent his entire working life in McKeesport, PA, which is a Pittsburgh suburb. It is a bit grimy. Johnstown is approximately 40 miles from Altoona. I go to Pittsburgh at least once a year to visit my brother.
The closing of the steel mills in Johnstown and Pittsburgh came about for a variety of reasons. Sorting them out is a challenge. In any case, their closure had a devastating impact on both cities, although more so in Johnstown, I believe, than Pittsburgh because it had a more diversified economy. The same was true for Altoona with the dramatic downsizing of the shops and the eventual elimination of Altoona as a crew change point.
Most of the young people with any ambition got out of all three cities. A significant percentage of them went to college and then on to better things. The old timers (anyone over 40 to 50), however, were trapped. Most of them were unable to find other work or work as good as they had in the mills. They became embittered, and most of them remained so until they died.
My brother is an electrical engineer. He worked for Westinghouse in East Pittsburgh for 25 years, only to fall victim to Westinghouse closing its T&D business. But he was able to start a consulting business, and he has done very well. Not rich, but well! He believes that Pittsburgh is better off without the steel mills. Other businesses have moved into the area, and he has told me that it has become something of a high tech center. It is also a major banking and medical center for western Pennsylvania. The University of Pittsburgh and Carnegie Mellon University are top drawer universities. Several years ago one of the retirement magazines touted Pittsburgh as a great place to retire because of the quality of life there.
Altoona went through a similar experience with the downsizing and the outsourcing in the railroad industry. When I was in high school, the Pennsylvania Railroad employed more than 10,000 people in the Altoona and the Hollidaysburg shops as well as the over the road crews for the Middle and Pittsburgh divisions. Today there may be 2,000 or so working directly or indirectly for the NS or an out-shopper in Altoona. But the city is doing very well. Other businesses have moved in and taken up some of the slack created by the demise of the railroad business in Altoona. In fact, who would have guessed it, Altoona now has a minor league baseball team. It doesn't get any better than that.
Oh and interestingly given the topic we are discussing, the psuedonymn "Slalin" (his real name was Iosif Vissarionovich Dzhugashvili) comes from the Russian word for steel, Stol, and refers to his method of ruling "with a steel hand".
Murphy Siding What you are suggesting, is that all things and all people are exactly the same. That all prices and all wages should be the same- no matter what. 'Turns out that's been tried. It didn't work for ol' Joe Stalin either.
What you are suggesting, is that all things and all people are exactly the same. That all prices and all wages should be the same- no matter what. 'Turns out that's been tried. It didn't work for ol' Joe Stalin either.
As a Russian speaker and someone who has studied the former Soviet economies I can say that there is very little comparison to the differential pricing models used by the ICC in the Sixties and Stalin, a paranoid who killed anyone who thought would be a challenge to his authority, in a society without a tradition of parliamentary democracy that was 97% peasant (only 3% engaged in industrial production of any kind ) in 1917, that faced a highly industrialized Germany in a war that killed somewhere between 20-40 million Soviets and survived through massive mobilization and incredible privation. And if you criticized Stalin's resource allocation policies you would either be sent to Siberia to die of hunger and overwork or be killed outright. Not really similar to the ICC, right?
LOL, there is a rule in debate that the first person to mention Hitler loses, and that should apply to Stalin as well.
Read this with interest. I've always felt we needed to keep our steel mills going, even if it cost more. This country has done too much outsourcing just to save a buck. The heck with helping our own people seems to be the philosophy of big business.
I can remember my parents and I coming into Pittsburgh on the Pennsy in early morning and the skies were lit up with the fires from the blast furnaces. American industry hard at work. Never knew they would someday be gone, along with the Frisco and so many other RR's.
schlimm Instead of simply insisting that fairness doesn't matter in business enough to try to achieve, try looking at some market and other research to see how customers react in terms of product brand loyalty when they discover others consumers are getting a better deal from the same source. You may wish to pejoratively label them as "unreasonable" but they are likely the norm. Check "equity theory" studies. Of course businesses and customers are free to do what they want, but damaging a company's goodwill for short-term gain is the risk taken. Maybe the customer base will be ok as you say, maybe not and look elsewhere, if that is an option. But it is clear, the consequences have to be taken into account to order to make a wise business decision. Although it's a bit different situation (the wholesale end), you may find you are whistling a different tune if a major home improvement chain sets up an outlet near your lumber yard, offering lumber at retail prices, below your cost, b/c they have a deal with one of your suppliers, who then tells you in effect, "Tough. Get over it. Move on."
Instead of simply insisting that fairness doesn't matter in business enough to try to achieve, try looking at some market and other research to see how customers react in terms of product brand loyalty when they discover others consumers are getting a better deal from the same source. You may wish to pejoratively label them as "unreasonable" but they are likely the norm. Check "equity theory" studies. Of course businesses and customers are free to do what they want, but damaging a company's goodwill for short-term gain is the risk taken. Maybe the customer base will be ok as you say, maybe not and look elsewhere, if that is an option. But it is clear, the consequences have to be taken into account to order to make a wise business decision.
Although it's a bit different situation (the wholesale end), you may find you are whistling a different tune if a major home improvement chain sets up an outlet near your lumber yard, offering lumber at retail prices, below your cost, b/c they have a deal with one of your suppliers, who then tells you in effect, "Tough. Get over it. Move on."
Thanks to Chris / CopCarSS for my avatar.
schlimm A business (except utility-type businesses) has the right to charge whatever they want. All I'm saying is the impact that has on the mindset of the customer base has to go into the decision matrix in a well-run company. If you own a hamburger joint, you can raise your prices to $25.00 for a "cheezbuhga" if you want to, or charge one guy $3 (below cost) and another guy at the next table $30 to compensate, and then the 1st guy $15 the next day, because you can. But don't expect much repeat business.
A business (except utility-type businesses) has the right to charge whatever they want. All I'm saying is the impact that has on the mindset of the customer base has to go into the decision matrix in a well-run company. If you own a hamburger joint, you can raise your prices to $25.00 for a "cheezbuhga" if you want to, or charge one guy $3 (below cost) and another guy at the next table $30 to compensate, and then the 1st guy $15 the next day, because you can. But don't expect much repeat business.
In Texas, as well as several other states, the generation of electric energy has been de-regulated. That is to say, the commercial terms have been de-regulated, and the generators can charge whatever price the market will support. Generators can differentiate between classes of marketers, i.e. residential, industrial, commercial, etc., but they may not discriminate against customers in the same class.
In Texas customers served by investor owned utilities, as opposed to public power and co-ops, have a choice of service providers. They can buy their power from the retailer offering them the best deal. The retailers can charge whatever the market will bear. And they can compete against each other, which they do robustly. Residents of Dallas, for example, can choose from more than 30 electric energy retailers. However, a retailer may not discriminate against a customer within a class unless it offers the same incentive to everyone in the class.
I agree that what the customer perceives as fairness can influence their buying decision. However, what the customer perceives as fairness is often in the eyes of the beholder. It cannot be regulated because it cannot be defined. So, the way fairness is controlled is through the law of supply and demand. If a customer feels that product is unfairly priced, they are free walk away and search elsewhere. What could be more fair than that? The seller wants the highest price and the customer wants the lowest price. Neither one is free to dictate to the other what the price should be.
A lot of people believe that a gas station has no right to raise the price on gasoline that is in their underground tank, bought, and paid for. They would say that if they bought gas there in the morning at $3 per gallon, the station has no right to charge them $3.25 in the afternoon for gas out of the same pool of gas from the same tank. They reason that the value of the gas in the underground tank is only determined by what the station paid for it, and therefore the station has no justification in raising the price because they paid one price for the gas in the underground tank.
However, the value of the gas in the underground tank fluctuates according to supply and demand. So the value of a tank of gas can change from one moment to the next. So, the gas in the underground tank is really not the same item from one minute to the next. It depends on how much gas is in the whole supply chain and how much the whole world wants gas.
schlimm As to preferential pricing? That is really a different issue and varies from sector to sector. However, the notion that most people are just fine with the idea that the person next to them paid less on the same day, from the same vendor for the same widget flies in the face of market research.
As to preferential pricing? That is really a different issue and varies from sector to sector. However, the notion that most people are just fine with the idea that the person next to them paid less on the same day, from the same vendor for the same widget flies in the face of market research.
Ken: One more time. I think we are basically in agreement here and differing over those bedeviling details. The fixed costs have to be covered and what should happen is every time new business is added in a tariff industry like the rails were, the old tariffs should be modified to reflect the additional revenue. In other words, using the ethyl and coal example, the rate charged to the coal company should be lowered because there is now more business to spread the fixed costs over and the rate to ethyl should reflect that it covers its share of overhead. As to why the ICC was involved? Paul's answer covers that succinctly. The history of the gilded age is complex and the ICC was one consequence. The situation changed and much of those efforts seem out-dated now, looking at it through our late 20th-early 21st century prisms.
Differnt rates for different customers for the very same service provided is OK...and its done in every industry. The reasons for that are many... no two customers are exactly alike, and the marketplace is ever changing....when customer A called on Monday the sales hopper was looking empty so I gave him a good rate..when customer B called on Wednesday things we're looking up and I charged him more accordingly. Smart customers in any industry know how to play the game and get the lowest pricew for themselves by understanding what primary factors influence the service provider's pricing.
Are most of the rates/charges today contract rates or tariff rates?
Contract rates will be confidential while the tariff rates are an open book. My guess is that a carrier would want to keep certain prices open and certain prices confidential. This example is a very good one of showing what can occur.
Many companies have a clause in their contracts and require that they have the lowest rates applicable and if the carrier negotiates a lower rate with another company then that will trigger the lower rate.
It all comes down to pricing power. Do you have it? If you do, you are in the driver's seat, at least for awhile (until alternatives come along...and the alternatives always come around). Think not? Look at Microsoft. Look at oil. Look at coal. Each is experiencing price swings as alternatives are developed.
Microsoft will compete with "the cloud" and others. Sovereign oil nations now are competing with North Dakota and Canada. Coal vs natural gas.
Ed
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