Basing Point

What is a Basing Point?

The basing point is the specific foreordained geographical location utilized in the basing point pricing system, in which the delivered price is no different for each objective, regardless of where the product is created or from what point it is shipped. Firms that utilization the system set the prices of their goods inside a given market based on a base price plus a set rate for transportation charges, paying little heed to how far buyers are from their location.

Understanding a Basing Point

The basing point is usually where the manufacturing of a product or production of a commodity happens. The manufacturer then, at that point, provides the base cost estimate plus a set shipping cost from that location to all the buyers in that market, paying little mind to how far they are from the basing point.

Basing point pricing empowers selling firms to conspire by just settling on a base price — and it brings buying firms' ability down to gain a competitive advantage by location or private transportation. Basing point pricing was once common practice in the United States, especially in the steel, concrete, and automotive industries. Even after the section of the Sherman Antitrust Act in 1890 that banned price fixing, companies widely utilized basing-point systems for an additional 60 years.

Unlawful Use of Basing Point Pricing

In 1948, the Supreme Court administered in Federal Trade Commission v. The Cement Institute, et al., that the broad basing point system utilized in the concrete industry was unlawful and comprised an unfair method of competition to fix prices.

In 1924, the Federal Trade Commission requested the United States Steel Corporation (X) and seven of its subsidiaries, which together created about half of the total moved steel production in the United States, to abandon the utilization of basing point pricing known as "Pittsburgh Plus." Members of this price system sold their products at a base price and afterward added a freight charge.

Observers contend that major steel producers in the North utilized the Pittsburgh Plus basing point pricing model to keep the South in a difficult situation in the steel industry.

Illustration of a Basing Point in Shipping

For instance, we should expect Chicago is the basing point, then, at that point, a shipment inside Chicago will cost the base price, and a shipment outside Chicago will cost the base price plus the set shipping rate anyplace inside that zone. Company X operates Chicago and Company Y is found 100 miles west of Chicago. On the off chance that a customer is found 50 miles east of Chicago, the set price a product under the basing point system will incorporate a similar transportation fee and the two companies must charge something very similar, even however Company X just needed to ship the product 50 miles, while Company Y needed to ship it 150 miles.

Features

• The basing point itself is usually where the manufacturing of a product or production of a commodity happens.
• Basing point pricing is a system where a buyer must pay the price for a product comprehensive of freight costs, regardless of the vender's location.
• Basing point pricing brings buying firms' ability down to gain a competitive advantage by location or private transportation.
• Basing point pricing empowers selling firms to intrigue by basically settling on a base price.