Opinion ID: 1483125
Heading Depth: 1
Heading Rank: 8

Heading: Involuntary or Punitive Bases.

Text: Closely related to price leadership is the Commission's contention concerning the use of involuntary or punitive bases by certain of the respondents. This is the nearest approach the Commission makes to a showing of any power for enforcement of the pricing system under attack. Finding 10 (a) states that some producers cannot resist the temptation to break away from the system in seeking particularly attractive business. This has occurred, and the departures have probably been more frequent among price followers. Successful maintenance of the system requires, therefore, that the price leaders, usually the larger chain mills, possess the power to force recalcitrants to adhere to the system and that this power be exercised when necessary. The multiple basing-point delivered-price system has inherent within itself means for enforcing its observance. One producer can, by putting a base price into effect at the mill of another producer, absolutely fix the maximum mill net of that producer, usually without affecting the mill net on more than a portion of his own business.    In practice, punitive bases have frequently been lower than the base price of the seller imposing them.    Some of the leaders of the cement industry have not hesitated to use this instrument to force adherence to the pricing system used in the cement industry. Then follows in findings 10(b) to (g) a narration of certain instances where punitive bases have been imposed and the effect or result achieved thereby. Many of the instances thus related occurred in 1931 and 1932, when a majority of respondents were not members of the Institute. We need enter no discussion of the explanation offered by certain of the respondents for the imposition of these so-called punitive bases. The significant fact is that there is no finding that they were imposed as the result of agreement among the respondents through the Institute or otherwise. As the finding recognizes, this power was possessed by price leaders, usually the larger chain mills. The Commission argues that the imposition of punitive bases is inherent in the system because the price leadership of base mills is implicit in the basing point system. We have already shown that price leadership is implicit in any pricing system. It inevitably exists where one or more members of an industry occupy a commanding position because of their strength and magnitude. To illustrate, Mill A, solely because of the power it possesses as a result of its commanding position in the industry, imposes a punitive base upon Mill B for the express purpose, we will assume, of requiring B to sell on a price level satisfactory to A. This is done, of course, without agreement between A and B, because if there was such an agreement the imposition of the punitive bases would be unnecessary. B is unwilling and perhaps unable to resist the price base imposed by A. If B desires to continue in business it has no choice other than to recognize the price base as determined by A. It becomes what the Commission terms a price follower. In doing so, it does not establish any suppression of competition or show any sinister domination. United States v. International Harvester Co., supra, 274 U.S. at page 708, 47 S.Ct. 754, 71 L.Ed. 1302. More than that, the situation cannot create any inference of an agreement or concerted action between A and B. But even if it did, such inference could not be indulged in against other producers or the Institute, all of which are without power to require or prevent either A or B from acting as they did.