Opinion ID: 1483125
Heading Depth: 1
Heading Rank: 6

Heading: What Is a Multiple Basing Point System of Pricing?

Text: We suppose that in every unlawful conspiracy the subject matter thereof must at some stage of the proceeding, either in the charge or otherwise, be described. The complaint contains no definition of the system of pricing which the Commission seeks to outlaw. The findings leave us in doubt as to the essential elements of the system which forms the basis of the conspiracy charged. The Commission's brief does not dispel but rather increases the doubt as to what the respondents agreed to do as a result of the conspiracy charged. Again the Commission fails to take a clear-cut stand but vacillates between a system which merely permits the absorption of freight and one which requires the collection of phantom or fictitious freight. It states, with reference to the latter: While this illogical and oppressive condition is a by-product of petitioners' [respondents'] basing point system, it is also inherent in it. We understand this to mean that phantom freight is an inseparable part of the system condemned. This places the Commission in a rather awkward position in view of finding 7 (b) that each mill is free to be or not to be a non-base mill for reasons its management considers sufficient. As already shown, comparatively few of respondents sell from a non-base mill and collect phantom freight. Suppose all of respondents were base mills, as they might be in the exercise of their independent judgment, would they then be using the system of which the Commission complains? Notwithstanding the Commission in its brief contends that phantom freight is an inherent element of the system charged in the complaint, counsel for the Commission in oral argument, in response to the conceded fact that all of the Pacific Coast respondents are base mills and collect no phantom freight, stated: I contend, and I shall show a few minutes later, that the existence of phantom freight is not a necessary element in the multiple basing point system at all. Referring to the term basing point, the Commission states: It has meaning only because it correctly implies that the place of actual shipment may not be the basing point. We understand this statement to mean that a basing point system would be innocuous if all respondents sold cement from a base located at the actual point of shipment, which a great majority of respondents do and which all could do if they so desired. The Commission, referring to non-base mills, states: The maintenance of petitioners' [respondents'] basing point system calls them into being and demands their application wherever a nonbasing point mill has customers to which there is no freight or to which the actual freight is less than the freight factor included in the delivered price quotation. How a system calls non-base mills into being and demands their application, in view of the Commission's concession that each respondent is free to establish a base or non-base mill for reasons its management considers sufficient, we are unable to comprehend. The Commission almost in the next breath states: Basing point mills are in a somewhat different position. The system does not require them to charge phantom or fictitious freight for geographic reasons as the nonbase mill does.    But the system does require that base mills shrink their mill nets as they go into territory where delivered price quotations are governed by another basing point. This is another exaggerated contention. Of course, the system does not require a base mill to charge phantom or fictitious freight; in fact, it does not permit such a charge, and the record demonstrates conclusively that it was not charged by respondents who price from a point of actual shipment. [5] Neither does the system require that base mills shrink their mill nets. What it does is to permit the absorption of freight and this at the option of the seller when it desires to sell in territory where it has a freight disadvantage. The Commission states: The ability of the nonbasing point mill in its own freight advantage territory to add the freight from the basing point and the requirement that it do so if the system is to be maintained results in the imposition of fictitious freight charges or so-called phantom freight. No doubt the non-basing point mill has the ability to accomplish what is stated, but the significant thing is that there is no requirement that it do so because it only becomes a non-base mill in the exercise of its own independent judgment and not as a result of the requirements of a system or a conspiracy between it and its competitors. The Commission states: It should be understood that it makes no difference in the results whether particular base prices are set by each base mill with or without direct collaboration and direct collusion with other base mills or with their other competitors. This is a contention born of necessity for, as heretofore shown, there is no finding of agreement or collusion between respondents as to base prices. The Commission continues: It is the method of pricing by formula that produces the identity of delivered price quotations. This is a significant statement and apparently means that it is immaterial whether the identity of delivered price quotations resulted from the conspiracy charged or from independent action. The Commission states: Petitioners' [respondents'] system includes the systematic imposition of phantom freight as in the Pittsburgh Plus and glucose cases. Here again it appears the Commission is contending that non-base mills with their phantom freight are an essential element of the system condemned. Obviously, however, the conspiracy charged did not refer to a system which includes the systematic imposition of phantom freight in view of the conceded fact that each respondent had absolute freedom in determining whether it would become a non-base mill. It is our view that respondents who have their own base mill and make a price predicated solely thereon are following a trade practice or policy essentially different from the non-base mill which predicates its price upon some base other than the point of actual shipment. Of course, we suppose that these two policies could be united in a common pricing system but this would require an agreement as to which were to be base and which were to be non-base mills, or an agreement that some agency such as the Institute should have the power to specify the class each mill should be in. But there is no such agreement and no such power vested in the Institute. In fact, the contrary situation appears from the Commission's finding that each mill was free to make its own choice as to whether it would become a base or non-base mill. Other statements contained in the Commission's brief are pertinent to note. One of its favorite themes is that the basing point system operates to nullify the natural advantages and disadvantages of location of the respective mills when quoting in a given territory. The Commission states: Under any kind of pricing method every mill has a substantial and naturally inherent advantage when quoting on nearby business in real competition with more distant mills. By the same token every mill has a substantial and naturally inherent disadvantage when quoting on distant business in competition with mills located nearer to the customer. This appears to be a logical statement but the question immediately arises as to how the Commission proposes to give effect to this naturally inherent advantage and this naturally inherent disadvantage. As we have already shown, it proposes to make supreme the advantage of a mill selling in the territory where it has a freight advantage, and to make its disadvantage so great when selling in a competitor's territory as to practically preclude it from entering that market. In fact, the advantage and disadvantage would no longer be natural but artificial, effected by the requirement that each mill sell on an f.o.b. mill price. The change from the present system to one conforming with the Commission's order would be like jumping from the frying pan into the fire. The Commission, referring to varying mill nets, states: They are the alter ego of the basing point system of identical delivered price quotations. When gears in a machine mesh that neatly, we may be sure someone planned it that way. The Supreme Court in the old Cement case failed to comprehend this contention. The court stated (268 U.S. at page 598, 45 S.Ct. at page 589, 69 L.Ed. 1104): The use of basing points    appears not to have been the result of any collective activity on the part of defendants or cement manufacturers generally, nor were they arbitrarily selected. Their use is rather the natural result of the development of the business within certain defined geographical areas. When a manufacturer establishes his factory at a given point of production and sells his product in a territory which is contiguous freightwise to his factory, other mills established in the vicinity and serving the same territory, in order to compete in that territory [italics ours]    must sell at a mill price which will permit them to deliver cement at a price which will enable them to compete with the mill or mills located at the basing point   . If it be assumed, as the Commission argues, that someone planned it that way, who did the planning? Certainly it was not the present respondents because, as shown by the findings heretofore noted, the pricing system had long been in use prior to the inception of the conspiracy now charged and it is self-perpetuating.