vantage accept the freight
at a rate that by a perfectly normal bookkeeping is below cost, while
the teamsters on the road from C cannot do this.

[Illustration:
C
|
|
| RAILROAD
|
|
A--------------------------------B
RAILROAD
]

_A Second Case in which Carrying is done for Any Amount above Variable
Cost._--Let us now suppose there is a railroad from C to B as well
as one from A to B. There is now competition between makers at A
and carriers from A to B, on the one hand, and makers at C and
carriers from C to B, on the other hand; and whichever of these
quasi-partnerships delivers the goods at B at the cheaper rate gets
the whole traffic. By the terms of our supposition the makers in both
places are offering goods at cost, and any cutting of rates that is
to be done must be done by the carriers. To reduce the prices of the
goods at the mills in either locality would put some of them out of
business. We will assume that there is no consolidation and no other
means of concurrent action between the railroads, and that the whole
traffic will thus go to the route over which the lower rates are made.
For simplicity we will still adhere to the supposition of equal costs
for manufacturing and of unequal costs for carrying. As the charge for
carrying goes down, one or the other of the railroads will reach the
point where the variable costs of this traffic are barely covered,
while on the other line they are more than covered. Where rivalry is
not tempered in any way whatever, the charge made by competing roads
falls to a level at which returns only cover the variable costs
incurred by one of the competitors, though it may return somewhat more
in the case of the other.

_How Fixed Costs are Met._--This implies, indeed, that the fixed
charges of both roads must somehow be met by the returns from other
traffic; and this supposition is in accordance with the facts. A
freight war may temporarily carry rates to a level where some traffic
does not cover variable costs and where total traffic falls short of
covering total costs. Such a situation cannot long continue, and the
natural adjustment, under active competition, is one at which rates on
the traffic for which the two lines are contending are just b