Off Base

When a U.S. contractor set out to build a building or a road, he ordered cement from as many as ten plants. The nearest might be next door, the farthest 1,000 miles away. But when the cement was delivered, it all came at the same price, no matter whether it had been shipped one mile or 1,000. The "multiple basing point system" worked that way.

Under this cozy arrangement, the base prices of cement were fixed at certain "basing point" plants across the country. Beyond the base price the buyer also paid freight costs from the nearest basing point plant. All cement plants in the U.S. thus charged the same price for cement laid down at any one job. The plants closer to the consumer than the basing point plant tacked on a "phantom freight" which was more than the shipping cost; the plants farther away charged a freight which was less (and took less profit).

Off with the Old. Last week, the U.S. Supreme Court declared the cement industry's basing point system illegal. It upheld the Federal Trade Commission in its eleven-year-old antitrust suit against the Cement Institute and its 74 member companies. Said the Court: "[The system is] a handy instrument to bring about elimination of any kind of price competition." In fact, said the Court, cementmakers had used the system to suppress competition by 1) boycotts, 2) price cuts (against plants refusing to play ball), 3) identical bids to cement users, and 4) opposition to the building of new plants.

FTC lost no time in cashing in on its victory. Two days later it ordered 37 brickmakers to stop using the multiple basing point system, and broadcast a warning to all users--steel, farm machinery, chemicals, etc.--to cut it out. FTC said that it would proceed with suits and complaints now on file against such industries as steel, metal lath and conduits.

What the FTC wanted, in effect, was an f.o.b. system such as automakers use, with consumers paying the cost of a product, plus the actual freight to the point of delivery. For many a consumer close to a plant, this would mean a price cut. Those far away might find prices boosted, at least as long as materials were scarce.

On with the New? As expected, many an industry yelped in protest. They argued that the system had actually helped competition: it had kept small producers from being put out of business by price-cutting mammoths. U.S. Steel's Chairman Irving S. Olds cried that elimination of basing points would result in wide dislocations of industry. He appealed to Congress to nullify the Court's decision with a new law. But there was no disputing FTC's stand that the system had caused cementmakers, and many another manufacturer, to set identical--and often rigidly high--prices on products with little regard for competitive conditions. They might find it hard to convince Congress that this was the free competition they said it was.

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