Basing Point Pricing System

AAA

DEFINITION of 'Basing Point Pricing System'

A pricing system in which the buyer pays a base price plus a set shipping price depending on the distance from a specific location. The basing point pricing system sets a predetermined location, known as the basing point, then adds a transportation charge depending on how far away the buyer is from that location. Typically, the basing point is the same location as the manufacturing point, and the shipping charge is determined despite the actual location of the buyer or seller.

In other words, prices include transportation charges from the basing point, regardless of the location from which the actual shipment is made.

INVESTOPEDIA EXPLAINS 'Basing Point Pricing System'

Since inception, the basing point pricing system has encountered opposition due to its collusive, cartel nature. Once a given basing point is set, there is little incentive to set up manufacturing plants in locations outside of the area. Therefore, competition tends to cluster in one region with few price differences.

For example, the basing point is set at location Alpha because coal is produced there. Company X operates in Alpha and Company Y is located 100 miles west of Alpha. If a customer is located 50 miles east of Alpha, then the set price for coal under the basing point system is $1,000 plus a $300 transportation fee. Both companies must charge $1,300, but Company X only has to ship the coal 50 miles, whereas Company Y has to ship 150 miles.

RELATED TERMS
  1. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given ...
  2. Transportation Expenses

    An expense incurred by an employee or self-employed taxpayer ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  4. Rational Pricing

    A financial theory that contends that the market prices of assets ...
  5. Collusion

    A non-competitive agreement between rivals that attempts to disrupt ...
  6. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
Related Articles
  1. Personal Finance

    Early Monopolies: Conquest And Corruption

    This structure can be very effective, but it is also known for its abuse of power.
  2. Professionals

    Understanding Interpersonal Skills

    Interpersonal skills are the social skills people use to interact effectively with other people. A lack of good interpersonal skills may lead to unsuccessful personal relationships, as well as ...
  3. Professionals

    Who Counts as an Entrepreneur?

    An entrepreneur is a person who starts a new business or organization, taking some personal financial risk to do so. He or she may quit a secure job to devote time to starting the new business, ...
  4. Investing

    Understanding Turnover

    Turnover has a number of different, but related, meanings depending on the context in which it is used. Generally, it means the number of times an item is replaced with a new or similar version ...
  5. Investing

    What are Operating Expenses?

    An operating expense is any expenditure made for the purpose of operating a business. These expenses are the day-to-day costs that help keep the business going. Operating expenses are reflected ...
  6. Investing

    What's Overhead?

    Overhead is an accounting term used for expenses that have to be paid even if the business doesn’t earn any revenue. The business would not be able to operate without paying its overhead expenses, ...
  7. Investing

    What's a Bank Guarantee?

    Bank guarantees are used to assure a third party of payment or performance of an obligation. The obligation can be either to pay an amount due or to perform on a contract. By granting the guarantee, ...
  8. Investing

    Just In Time

    Just in time (JIT) is a system of supplying goods as close as possible to when they are actually needed. For a company that resells, that means goods arrive just before hitting the shelves for ...
  9. Investing

    What's a Fixed Asset?

    Fixed assets are tangible property that a business uses in the process of producing income. To qualify as a fixed asset, the item cannot be consumed or sold in less than a year. Fixed assets ...
  10. Investing

    Corporate Governance

    Corporate governance refers to the formally established guidelines that determine how a company is run. The company’s board of directors approves and periodically reviews the guidelines, which ...

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center