The Morality of Basing-Point Pricing

TH THOMIST A SPECULATIVE QUARTERLY REVIEW OF THEOLOGY AND PHILOSOPHY EDITORS: THE DoMINICAN FATHERS OF THE PRoVINCE OF ST. JosEPH Publishers: The Thomist Press, Washington 17, D. C. VoL. XV JULY, 195£ No.3 THE MORALITY OF BASING-POINT PRICING N ORDINARY consumer lives, buys and dies without ever understanding the intricacies of price determination . Supply and demand seem to be the main causes. But sometimes neither supply nor demand seem important as prices get " stuck " at a certain level, whether buyers take little or much. Sometimes the suspicion arises that sellers are following the policy of charging all that the market can bear. Politicians and employers frequently blame labor unions for rising costs and prices. Then, to complicate matters, inflation and defiation make money cheaper or dearer, which is the same as raising o:r lowering all the prices at once. Actually, pricing policies are even more complicated than most people suspect. One does pay more when buying on credit; is the higher price due to the financial accomodation, or are there " penalties " included for not buying cash? What about zoning systems? A roll of newsprint sells for one price 349 350 R..4.YMOND C. JANCAUSKAS throughout Canada, no matter where it comes from and where it arrives, while the prices in the United States change according to zones that radiate from Canada. Why must such a price system be used? This article deals with basing-point pricing, one of the more complicated systems. In its most simple form, a single-basing-point system is a practice wherein all products of a given nature are priced to all buyers in all markets as though originating at a single shipping point. Actually, however, shipments may be made from that point or from any of a multiple number of producing points. The most widely known of these systems was the practice employed in the steel industry for about 50 years prior to 19~4, known as Pittsburgh Plus. Under that practice, steel was sold to buyers in all markets at f. o. b. mill prices based upon the fiction that the point of origin for all shipments was Pittsburgh.... The buyer paid, irrespective of the location of his seller's mill, the f. o. b. mill price plus the rail freight cost from Pittsburgh to the buyer's destination. Thus an Iowa buyer of steel from a Gary, Ind., mill paid the f. o. b. Pittsburgh price plus the cost of rail transportation from Pittsburgh to Iowa. This practice has long since been held illegal by the courts....1 By making the system a little more complicated, the steel and cement companies thought they would avoid trouble. The change was very simple: The multiple-basing-point system is distinguished from the singlebasing -point system in that it includes two or more points of origin from which transportation costs are computed, which may or may not be the actual points of shipment.2 Since the system operates on exactly the same principles, but over many small areas instead of one big area, the Federal Trade Commission has attacked it and sought its discontinuance . One way of analyzi.ng the implications of this pricing practice would be to concentrate on its immediate objective: achieving 1 U. S. Senate, Interim Report on Study of Federal Trade Commission Pricing Policies, 8lst Congress, 1st Session, Document No. ~7 (Washington, 1949), pp. £-8. This source will be referred to as the Interim Report. "Ibid.. p. 8. THE MORALITY OF BASING-POINT PRICING 351 a single price to every buyer no matter where, or from whom, he buys. According to Prof. Machlup, The quoting of identical delivered prices is the immediate objective; that it involves price discrimination on th part of individual producers located in different regions is in a sense merely incidental to the attainment of the major objective.3 This was also the conclusion of the Temporary National Economic Committee: Extensive hearings on basing-point systems showed that they are used in many industries as an effective device for eliminating price competition.... The elimination of such systems under existing law would involve a costly process of prosecuting separately and individually many industries, and place a...