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BASING‐POINT PRICING AND INCOMPLETE COLLUSION *
Author(s) -
Levy David T.,
Reitzes James D.
Publication year - 1993
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.1993.tb00208.x
Subject(s) - collusion , cartel , profit (economics) , microeconomics , economics , point (geometry) , competition (biology) , mathematical economics , mathematics , ecology , geometry , biology
. It has been contended that basing‐point pricing (BPP) is not indicative of anticompetitive behavior because a cartel would never attain maximum profits by using BPP. We disprove this contention. BPP is the profit‐maximizing pricing strategy for a cartel that faces competition only at selected locations. In addition, our model explains the emergence of multiple basing points, and establishes that BPP must be consistent with a market‐division scheme.