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Basing Point Methods of Price Quoting1

Published online by Cambridge University Press:  07 November 2014

J. M. Clark
J. M. Clark*
Affiliation:
Columbia University
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Extract

Basing point methods of price quoting represent one form of imperfect competition in a group of industries, the underlying characteristics of which make some form of imperfect competition inevitable. They are departures from “normal” competition, by our simple inherited theoretical standard. But those who have had contact with the N.R.A. experiment in the United States must have had reason to doubt whether any industry is “normal” by such standards. Possibly the trouble was with what we had conceived as normal. In any case, this form of pricing deserves study uncontrolled by inherited preconceptions.

It appears to arise in industries having four main characteristics or predisposing conditions. The first is a standardized commodity, such that purchasers will not buy from one producer if another producer offers even a very slightly lower price. This is true of the main product of the cement industry, and approximately true of basic tonnage steel products, but less so of the higher grades of steel.

In the second place, production is localized, with a considerable number of producing points at considerable distances from one another. Some centres of production include a number of rival producers, others only one.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 4 , Issue 4 , November 1938 , pp. 477 - 489
Copyright
Copyright © Canadian Political Science Association 1938

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Footnotes

1

In accordance with a well-founded principle of academic ethics, the writer wishes to state his affiliations. Having been engaged by N.R.A. to take part in its study of steel basing points, he was later engaged by a Committee of the Cement Institute (an association of cement producers) to take part in an impartial survey of the use of basing points in that industry. The lecture, delivered at the University of Toronto, in January, 1938, on which this article is based was the outgrowth of these studies; but after the topic had been submitted and before the lecture was delivered, the writer had agreed to consult with defence counsel for the Cement Institute in the Federal Trade Commission's action against them. Needless to say, this article attempts a scientifically objective analysis, with what success the reader must judge.

References

2 It does not appear to change much with changing rates of utilization.

3 It is a “point” in the sense that all points in it pay the same freight rate to any given destination beyond a moderate distance.

4 The current terminology of imperfect competition states that an “element of monopoly” begins wherever the demand schedule for the product of an individual producer has an elasticity less than infinity: that is, wherever his individual demand curve has any slope at all. The present writer has never been wholly satisfied with the expediency of this terminology; but if it is used, a correlative would seem to be a definition of the point where an “element of competition” begins: namely, that it begins at the point where the demand schedule for the product of an individual producer is more elastic than the total demand schedule in the market or market area. This occurs where the producer in question shares the area with other sellers, and where by reducing his price, he can increase his proportionate share of the total sales in the market, at the expense of the proportionate shares of the other producers.

5 Except as he might mask it through delivery by truck and juggling the accounts of truck costs or payments. If this form of evasion were permitted, there might be an artificial and illegitimate stimulus to trucking.