Basing Point
Contents
Exploring the Concept of Basing Point Pricing
Understanding the Intricacies and Historical Significance of Basing Points
What is a Basing Point?
A basing point serves as the cornerstone of the basing point pricing system, dictating a uniform delivered price for a product across various destinations, regardless of its origin or shipping point. This pricing mechanism allows firms to establish prices based on a standard base price plus a fixed transportation charge, ensuring consistent pricing within a market.
Understanding a Basing Point
Typically, the basing point coincides with the location of product manufacturing or commodity production. Sellers quote a base price coupled with a predetermined shipping cost from the basing point to all buyers in the market, irrespective of their distance from the origin. This approach facilitates collusion among selling firms by agreeing upon a base price and diminishes the competitive advantage of buying firms based on location or transportation methods.
Unlawful Use of Basing Point Pricing
Historically, the use of basing point pricing has been subject to legal scrutiny. In 1948, the Supreme Court deemed the industry-wide basing point system in the cement industry unlawful, citing unfair competition and price-fixing concerns. Similarly, the Federal Trade Commission intervened in 1924, ordering major steel producers to abandon the "Pittsburgh Plus" basing point pricing model, which disadvantaged certain regions economically.
Example of a Basing Point in Shipping
To illustrate, consider Chicago as the basing point. Shipments within Chicago incur the base price, while those outside the city entail the base price plus the stipulated shipping rate within the designated zone. Regardless of the actual shipping distance, buyers within the specified zone pay the same total price, enabling uniformity in pricing despite varying shipping distances.