Power and Market: Government and the Economy

An important example of the monopolizing effects of a program supposedly designed to combat monopoly is the court decision outlawing basing-point pricing. On the free market, price uniformity means uniformity at each consuming center, and not uniformity at each mill. In commodities where freight costs are a large proportion of final price, this distinction becomes important, and many firms adopt such price uniformity, enabling firms further away from a consuming center to “absorb” some freight charges in order to compete with local firms. One of the forms of freight absorption is called “basing-point pricing.” Ruling this practice “monopolistic” and virtually decreeing that every firm must charge uniform prices “at the mill” not only prevents interlocational competition in such industries, but confers an artificial monopolistic privilege on local firms. Each local firm is granted the area of its own location, with a haven set by the freight costs of out-of-town rivals, within which it can charge its customers a monopoly price. Firms better able to absorb freight costs and prosper in a wider market are penalized and prevented from doing so. Furthermore, the decreasing-cost advantages of a large-scale market and large-scale production are eliminated, as each firm is confined to a small compass. Firms’ locations are altered, and they are forced to cluster near large consuming areas, despite the greater advantages that other locations had offered to these companies.48 Furthermore, such a ruling penalizes small businesses, since only large firms can afford to build many branches to compete in each local area.49

• 48See United States Steel Corporation, T.N.E.C. Papers (New York: U.S. Steel Corp., 1940), II, 102–35.
• 49See William M. Simon, “The Case Against the Federal Trade Commission,” University of Chicago Law Review, 1952, pp. 320–22. On basing points, see also Scoville and Sargent, Fact and Fancy in the T.N.E.C. Monographs, pp. 776–82; Wayne A. Leeman, “Review of Paul Giddens’ Standard Oil Company (Indiana),” American Economic Review, September, 1956, p. 733; and Donald Dewey, “A Reappraisal of F.O.B. Pricing and Freight Absorption,” Southern Economic Journal, July, 1955, pp. 48–54.