Basing Point Pricing System

What Is a Basing Point Pricing System?

A basing point pricing system is a geographic pricing strategy by which companies decide a fee for a decent sold, plus an additional freight charge that is calculated based upon the customer's separation from a starting, or "basing point." Buyers found nearer to the basing point pay less for shipping than those based further away.

Understanding Basing Point Pricing Systems

Basing point pricing is also known as base point pricing and is generally utilized by oligopolies conveying homogeneous goods that are cumbersome and costly to ship. Companies utilizing this system base their prices on two parts:

1. The company sets a base price for the product, which is the amount it costs at the factory gate.
2. The company lays out a freight or shipment price that is based upon where the customer who is buying the product is found and the distance away the customer is from a pre-decided location, known as the basing point.

This additional charge is expected to cover the additional cost of shipping something exceptionally heavy, cumbersome, and costly, like concrete, steel, or vehicles.

Typically, the basing point is a similar location as the manufacturing point, meaning the shipping charge is resolved based upon the customer or delivery location's separation starting there. Be that as it may, this can become controversial while the basing point is not quite the same as the actual location from where the thing is shipped.

This might happen in the event that a company has several manufacturing plants however just one basing point or on the other hand in the event that a decent is delivered in a factory in any case, stored in a warehouse. In the event that the factory is the basing point, the distance between the warehouse and the delivery location may not be equivalent to the factory and the delivery location and the freight fee might be wrong, leading to what is known as phantom freight.

As such, a buyer situated almost a non-base plant from where the thing is shipped pays more for delivery than a customer found nearer to the basing point yet farther away from the objective where things are shipped.

Significant

Delivery charges are comprehensive in the price, so the buyer doesn't have the option to organize their own transportation.

Reactions of Basing Point Pricing Systems

Since its commencement, the basing point pricing system has experienced resistance due to its collusive, nature that is inseparable from cartels. Large companies with an oligopoly over a decent can lay out comparative initial pricing for their product. Next, when a basing point is set, there is minimal incentive to set up manufacturing plants in locations outside of the area. Consequently, competition will in general cluster in one region with few price differences. Expecting that all organizations keep the basing point pricing system agreement, [price competition](/cutthroat pricing) is kept away from and market share is kept up with.

Basing point pricing was once common practice in the United States, especially in the steel, concrete, and automotive industries. In 1948, the Supreme Court administered on account of the Federal Trade Commission (FTC) v. The Cement Institute, et al., that the broad basing point system utilized in the concrete industry prompted unlawful price discriminations.

That ruling came 24 years after the FTC requested the United States Steel Corporation (X) and seven of its subsidiaries, which combined delivered around half of total moved steel production in the United States, to stop complying with what was known as the "Pittsburgh Plus" price system. The culprits sold their products at a base price and afterward added a freight charge. The last option fee was considered to be unfair as shipments were frequently produced using a plant or warehouse nearer to the point of delivery than Pittsburgh. This data was not uncovered to buyers.

Features

• In a basing point pricing system, the buyer pays a base price, plus a set shipping fee contingent upon the separation from a specific location.
• The freight cost is planned to cover the additional expense of shipping something extremely heavy, massive, and costly, like concrete, steel, or vehicles.
• The basing point pricing system has been blamed for lacking transparency and being tricky, behavior that is inseparable from cartels.