I understand your point, but for a customer to have a valid complaint that a company is charging different prices for the same thing, a customer has to prove that the thing they are purchasing is the same thing that is being sold for another price. And even if they do prove that, there is no recourse other than simply not buying anything from that supplier. If enough customers do that, the company will have to decide if the ill-will is costing them more than the benefit of selling an item for a lower price than it sells to another customer. To the customers paying the full price, it does make them feel like they are subsidizing the ones getting the discount. So the resentment might go beyond just the failure to get the low price.
You are wrong. Companies charge all different kinds of prices for their products to diiferent customers all the time-you included. It’s certainly nothing new or illegal. When you buy a gallon of gasoline today for, say $3.59 a gallon (today’s price here), I will guarantee you, that someone else is paying less. Go back to the station tommorrow, and tell them you want the same price that those other guys are getting.
The answer, from a seller’s, or a buyer’s perspective, is that the rates are not EXACTLY the same, because every thing else about the transaction is not EXACTLY the same. In the example above, the coal company might expect for the same rates, if it decides to ship ethanol from the same plant to the same receivers, under the same conditions as the ethanol shipper. In the same vein, you might expect to get the same price break on gasoline that we do for our fleet of lumber trucks- that is, if you have a fleet of lumber trucks.
The coal company isn’t going to quit shipping by rail because the ethanol plant gets a better deal. It may move away from rail if some other means of transportation proved more cost effective.
In my book, anyone who says it is unfair to charge different rates to different people is at heart a socialist, not an exponant of free market capitalism.
The unit train customer gets a service for half the price the single-car customer gets on a per car basis, and I think that it fair. That is because I believe in the free market system.
If Sothwest Airlines charges one-third the full-rate ticket price for off-peak middle-of -the-week travel, I think that is fair because I believe in the free market system.
If somone drives a Cadilac and I drive a Chevy, I have no right to resent him.
To me, the coal company has zero right to complain. If they want, when the contract is up, they can try to use the Ethanol price to bargain with the railroad, but the result should be the result of negotiation without any government interference whatsoever. That is my opinion.
In my opinion the #1 caause was property taxes. Not just the ones on RRs which were very unreasonable as the almst total political budgets came from prop taxes. NY might have kept the 4 track and PRR the same if if they could have “banked” the unneeded track ??
The property taxes on all the industrys that PRR and NYC served caused them to move to less tax locations thereby killing the RR traffic base. Maybe some would have bullt / re built their NE facilities.
I strongly disagree with your assessment of the situation.
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In the cited example the railroad will have $730,000 more in its bank account at the end of the year than it would have had without the ethanol. This $730,000 can be used to pay interest on debt, taxes on property, and other overhead. That’s a significant contribution to overhead. In fact, any revenue above the variable cost is sometimes referred to as: “Contribution to Fixed Costs.” 'Cause it ain’t no profit until all the costs are paid.
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The coal company is using the railroad for one reason and one reason only. That reason would be that the railroad is the most cost efficient way to move their coal. They’d leave the railroad in a heartbeat if they could save money by moving the coal another way. That’s got to be the railroad’s focus. To keep themselves the low cost method of transport for their main customer. Getting additional revenue from the ethanol will help the railroad do this. They won’t have to have the coal company pay for everything. Odds are that the coal company will understand this common sense and not be upset by the railroad’s lower rate on ethanol.
It’s far better if a buyer and seller have a good, cordial working relationship. But there is a natural conflict between a buyer and seller. (Think of the last time you boug
Why is it “Frankly Wrong?” Look at the situation. (This is a very realistic situation often faced by railroad marketing/pricing people.) Under your “Frankly Wrong” belief the railroad can do nothing to get the new ethanol business.
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They can’t charge more to move the ethanol because of the truck competition.
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They can’t lower the coal rate to the ethanol rate because they wouldn’t cover their total cost if they did so.
Under your unfounded “belief” all the railroad can do is watch the trucks go by hauling freight that the railroad could make money on. That’s the position the government regulators put the Pennsylvania in with the “Ingot Molds”. If it was just that little bit of business it wouldn’t have been significant. But it wasn’t just that little bit of business. That’s the way they regulated rail rates. It helped kill the Pennsylvania and it hurt the people of the United States.
If the railroad in the example did establish the ethanol carload rate at $300 below the coal rate there would be no adverse effect on the coal. Their charges wouldn’t change by a dime. Don’t cry if you ain’t hurt.
On the other hand, the railroad would benefit from extra income and the ethanol folks would benefit from
As to the last point, the ICC got involved because the law required it. And that particular regulatory law existed because there was a demand for it when the statute was enacted.
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
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.
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.
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.
The notion isn’t that most people are fine with it. The notion is that most reasonable people understand why it happens, and most will agrre with the idea of why it’s done, after it has been explained in terms they understand.
The unreasonable folks are always just going to be unreasonable. That’s just human nature. If you go through life convinced that everyone is taking advantage of you, there’s not much anyone is going to say to convince you otherwise.
Let’s face it, there’s a certain segment of the population that’s always going to be complaining “that’s not fair!!!” There are some people, who can’t enjoy their piece of pie, because they’re too worked up, stewing over the possibility that someone else may have gotten a bigger piece of pie.
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.”
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
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.
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.
No business actively promotes that they are charging you more than the next guy. In fact, a lot of retailers do a lot of advertizing to try and convince you they you ARE getting a better deal than the next guy, because YOU are SPECIAL. Have you mentioned to your local gas station how much better you’d feel about yourself, if you could only buy gas at the same price as someone who has a big fleet of trucks?
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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.
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.
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.
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”.