rival vessel, and the ordinary effects of
competition then begin to show themselves. The vessels pursue the same
route, cater to the same traffic, and if they try to get business from
each other, bring down their charges. The warfare may even bring them
to reduce the rates to the level at which only variable costs are
covered--a policy that, if persisted in, would bankrupt them both; and
here, as well as in the case of railroads, there is a powerful motive
for combining and ending the war. It usually causes a merely tacit
agreement to "live and let live"--a concurrent refraining from the
fatal extreme of competition. The reductions, as made, have to be
general and to apply to all parts of the traffic, and unless each part
of the freight carried earns a _pro rata_ share of the fixed charges
incurred in the business, the traffic is carried at a loss. On the
supposition which we have made--that the special and comparatively
unprofitable increment of carrying was discontinued as soon as the
first vessel could use its entire cargo space in transporting goods of
a high class--the arrival of the second vessel may cause the less
profitable carrying to be resumed, since there will not be enough of
the better sort to afford two full cargoes. Moreover, a normal kind of
competition will stop short of the warfare which drives both rivals
into bankruptcy, and will leave the rates at a level at which the
receipts of each carrier cover all his outlays.[2]

[2] A full discussion of the limits of freight charges would
take account of the fact that "what the traffic will bear" is
an elastic amount. An infant industry will bear less than a
mature one; and moreover, a rate that it will bear without
being taxed out of existence may be sufficient to stunt its
growth. A railroad may be interested in hastening its growth.
When goods have one cost at A and another at B, a railroad
company may carry them from the one point to the other for
less than the difference between the costs because it wishes
the industry at A to grow and furnish freight. Farmers who
are introducing a new crop in a section of country remote
from a market may be encouraged by a rate for carrying which
leaves them a margin of profit. It is when a branch of
production has more nearly reached its natural dimensions
that the charge for carrying its product tends to approach
its highest limit.

CHAPTER XXI