The Economics of Basing Point Pricing

Abstract

Basing point pricing, adopted by steel producers some fifty years ago and since by many other industries, has been a subject of vigorous controversy among lawyers and economists for a quarter of a century. The clash of views has raised temperatures to the point of incandescence and has eventually shed some light on an intricate and significant problem. In the light, all economists have not seen the problem alike, but they have lined up on opposite sides of an issue, the general nature of which is fairly clear. That issue is whether basing-point pricing results from independent decision-making by business rivals, each anxious to maximize his earnings, or from conspiracy. A parallel issue is: what should be done about it? The second issue has forced students to look at the economic consequences of basing point pricing as well as its causes. Moreover, as the controversy has sharpened the issues, it has also narrowed the differences. Thus it has made for intellectual progress.