Monday, April 25, 2022

Rebates For All!

So, I did a little reading on the railway rebate system. No, stop laughing, I really did. And it was a pretty interesting exercise. 

For those who don't know, railways across particularly the northeast U.S. around 1870 were in their nascent stages, and they were controlled by very few. This is not because of some underlying conspiracy, it was just due to the capital costs involved. And these near monopolists had a pretty monopolistic way to charge. 

They pretty much made the prices up. 

If you wanted to ship your cattle that weighed 8,000 pounds 50 miles, you paid say $200. And the $200 was kind of pulled from thin air. 

Sharp people like Rockefeller who was refining oil in Cleveland at the time knew the game and said to these railroaders, "I will guarantee you lots of shipping and keep your cars full, but your prices are just guidelines, give me back some money."

They were happy to comply. This practice of rebating freight was not against the law, nor was it unsound (volume discounts are available to this day on many things). And with prices artifically (not market) set it was a business practice. 

Congress and other lawmakers in the U.S. were loathe to regulate any new business, and this paid off handsomely for the relatively new country compared to its regulation-laden, old school European counterparts. Business was allowed to thrive or fail. But, as was custom as well, when things were wacky, and the greater good - economic growth, free passage for goods - was threatened, they acted. 

This scheme was threatening to the overall business health of the country. Smaller businesses were squeezed out, consolidation and price fixing occurred, new entreprenuers and businesspeople were disincentived. 

With the passing of the Interstate Commerce Act in the late 1880's the government simply said "Rebates for All". Prices fell and the rest was (business) history. 

Horse racing, "the railroads" set their prices pretty much the same way. Takeout rates are made up, as can be done with a monopoly on gambling. And like the railroads, they rebate action to bigger players, while the smaller ones suffer.

Unlike the railroads, however, there are no gatekeepers. The business just trudges along with higher and higher prices, and rebates for some. It keeps the rail cars filled and they seem to be happy about it. 

But the business has been dying a slow death, with inflation adjusted handle stagnating; even with technological advancements and off track wagering. The funnel is not being filled. 

Some people out there believe all rebating should be stopped and things will be better, but with respect, they have not thought this through. High takeout for everyone would be the result because it's too hard to lower national takeout. And that's bad. 

But rebates for all? Yes, that would help immensely and give this game a shot in the arm it hasn't seen in a 100 years; just like it helped one of the (now) most powerful countries in world history to grow business and demand for their products.  

It'd be nice if 140 years later this industry gave it a shot. But I guess we shouldn't hold our breaths. 

Have a nice Monday everyone. 

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