chapter  X
11 Pages

Theory of Railway Charges

In the railway industry, fixed capital charges represent a high proportion of the total cost of carriage, whereas in other industries the ratio of capital costs to prime costs is much less. The revenue of a railway must suffice to meet both the additional net costs and the fixed costs except that for a time repairs and renewals may be held over. Differential charging may take a variety of forms and may be made possible by differences in demand, differences in cost, future interests, differences in both demand and cost, and joint costs. Rates and fares are to be regarded in economic science as the price paid for particular services. On a monopoly basis, economic theory shows that rates and fares would be adjusted that the greatest aggregate net revenue would be obtained. Under theoretical conditions the basis of rate fixing would be the difference in place values, because that is the underlying economic incentive to the demand for transport.