who supposedly condone and support it have undergone increasing
criticism, as reported by Wilson (pp. 138-9):


 As the ICC noted in its first annual report: "It
 was seen not to be unjust to apportion the whole
 cost of service among all the articles transported
 upon a basis that should consider the relative
 value of service more than the relative cost."
 Note that this relative downplaying of cost, pre-
 sumably MC, emphasizes "justice"--not efficiency--
 as the overriding criterion. Indeed, the commis-
 sion has seldom stressed the latter. It is this
 failure plus the persistent support of a non-cost
 oriented rate structure that has resulted in gener-
 ations of economists disparaging ICC regulations.


 Recently, however, an alternative explanation has been
offered to the value-of-service as price discrimination argu-
ment. DeVany and Saving suggest that observed price differen-
tials could be explained in terms of compensation for the costs
of an unobserved service characteristic such as prompt, expe-
dited service. If this explanation does account for all or a
large proportion of value-of-service rate structures, such rate
structures would be expected to persist in the event of deregu-
lation. This has obvious policy implications in transportation
as it weakens one of the rationales for deregulation. Examina-
tion of a competitively structured, never regulated transporta-
tion market, such as the one examined in the current study
offers an excellent opportunity to investigate the question.

 The explanation of value-of-service pricing as a form of
 price discrimination will now be outlined. Begin by making the
 following assumptions:


 1. The quantity demanded of a good (QD) equals the quantity
 transported (QT).
 2. The selling price (PQ) equals the sum of the F.O.B. plant
 price (PFOB) plus the transportation rate (PT) (i.e.,
 there is no freight absorbtion, positive or negative),
 and
 3. A perfectly elastic supply (ES) exists for the commodity.