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. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
  6. Collusion

    A non-competitive agreement between rivals that attempts to disrupt ...
RELATED FAQS
  1. How can I calculate funds from operation in Excel?

    In general, the terms "work in progress" and "work in process" are used interchangeably to refer to products midway through ... Read Full Answer >>
  2. When does Q4 start and finish?

    Most companies such as Facebook have financial years that end on December 31st. For these companies, the fourth quarter begins ... Read Full Answer >>
  3. When is it useful to look at a company's fixed asset turnover ratio?

    It is useful to look at a company's fixed asset turnover ratio when an outside observer, such as an investor, wants to know ... Read Full Answer >>
  4. What is the difference between perfect and imperfect competition?

    Perfect competition is a microeconomics concept that describes a market structure controlled entirely by market forces. In ... Read Full Answer >>
  5. How difficult is it to understand business analytics?

    In the abstract, business analytics is the study of financial, economic, consumer and production data through statistical ... Read Full Answer >>
  6. At what levels are core competencies required for businesses operating in the primary ...

    Core competencies help businesses understand their best abilities to perform in the market. Primary sector businesses mine ... Read Full Answer >>
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. Economics

    What Does Business-to-Business Mean?

    The term business-to-business refers to transactions or communication that takes place between two or more businesses.
  3. Economics

    What are Barriers to Entry?

    A barrier to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry.
  4. Economics

    Understanding Management by Objectives

    Management by objectives is a process in which a manager and an employee agree on specific performance goals and then develop a plan to reach those goals.
  5. Economics

    What Does Going Concern Mean?

    Going concern is a concept used in business and accounting to describe the fiscal health of a company.
  6. Fundamental Analysis

    Calculating the Capacity Utilization Rate

    Capacity utilization rate is a ratio used to compare a current usage level against a maximum potential level.
  7. Economics

    Explaining the Supply Chain

    A supply chain is the cumulative network involved in moving raw materials, components and finished products from original suppliers to end users.
  8. Credit & Loans

    Should You Use Credit Cards To Fund Your Business?

    We give you 4 reasons to consider using a credit card instead of a business loan to fund your business, and how to be smart about it.
  9. Economics

    What is Normal Profit?

    Normal profit is an economic term that means zero economic profit.
  10. Economics

    Understanding Organizational Behavior

    Organizational behavior is the study of how humans interact in group environments.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!