Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing
Tinbergen Institute Discussion Paper No. 09-007/1
48 Pages Posted: 16 Nov 2008 Last revised: 30 Mar 2011
Date Written: December 1, 2008
Basing-point pricing is known to have been abused by geographically dispersed firms in order to eliminate competition on transportation costs. This paper develops a topographic test for collusive basing-point pricing. The method uses transaction data (prices, quantities) and customer project site locations to recover the basing-point(s) from which delivered prices were calculated. These bases are compared to the locations of the production mills in a test that discriminates between competitive and collusive basing-point pricing. We define a measure for the likelihood of collusion that can be used to screen industries that traditionally apply delivered pricing for the presence of cartels. We operationalize this screen with a software. The test is hard to beat for cartels using this otherwise elusive form of price-fixing. When a cartel was found to have abused the basing-point system, our method can be used to estimate antitrust damages.
Keywords: basing-point pricing, cartels, detection, antitrust, damages
JEL Classification: L41, K42, C12
Suggested Citation: Suggested Citation