elow the
variable costs incurred by one line but above those incurred by the
other. There is nothing to prevent the stronger railroad from thus
reducing its rates, attracting to itself the whole of the traffic,
and putting an end to the rivalry of the other line. This would mean
bankruptcy for that line unless it had other sources of income.

_The Effects of Bankruptcy on Costs._--Bankruptcy means a scaling down
of the fixed charges of the railroad to such a point that the total
traffic can meet them; but it does not enable the company to reacquire
business that will not yield enough to cover variable costs. Adhering
to the supposition that there is no mutual understanding, no pool, and
no other approach to consolidation between the rival lines, we may
safely say that the general rule which elsewhere governs rates holds
true here. Two roads actively competing for identically the same
traffic tend to bring charges to a level at which the variable charges
entailed by this traffic on the one route are not quite met and the
traffic passes to the other line.[1]

[1] If we wish to vary our supposition that the cost of
making the goods at A and at C is the same, we have a
modification of the case we have stated. If it is much
cheaper to make them at A, the railroad that carries these
goods from there to B may charge more for carrying than does
the one that delivers the goods made at C. It is possible
that the difference between the costs of making at the
different points may tell decisively in favor of the longer
route, and it may be the railroad from C to B that first
reaches, in its charges, the level of variable costs and
sees its traffic handed over to its rival.

[Illustration:
C
|
|
| RAILROAD
|
|
RAILROAD |
A-------------------------------B
\ /
\ /
\____ /
\___ __________/
\____/
WATER ROUTE
]

_A Principle governing Competition between Railroads and Carriers by
Sea._--In a third case there may be between A and B a railroad and a
water route also, while between C and B there is a railroad only. On
the supposi