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pricing policies

  The arrangements whereby the prices at which commodities are offered to consumers are determined. In spatial economic analysis the important distinguishing feature of pricing policies is the extent to which price varies with distance from the origin or source of the commodity. There are two major alternative policies. The first is known as the f.o.b. (free on board) price system, under which there is a basic price at origin and the consumer pays the transport cost involved in getting the commodity to the point of purchase. The second is the c.i.f. (cost, insurance, freight) price system, under which the producer adds insurance and shipping costs to the production cost and offers the commodity at a uniform delivered price irrespective of distance from origin. The distinction between these two policies is important, for commodities sold c.i.f. should have no bearing on comparative (locational) advantage for productive activities requiring them as inputs; similarly, distance from origin should not affect the level of demand for goods offered on a c.i.f. basis (other things being equal). There is an increasing tendency for commodities to be sold at a uniform delivered price.

Various alternative pricing policies may be implemented. An f.o.b. system does not necessarily have minor incremental increases in price for small increases in distance; more often the prevailing freight rates on which delivered price is based will be constant over broad zones. There may be forms of spatial price discrimination, under which customers in some areas are charged a high price (perhaps because the supplier has a local monopoly) so as to subsidize the price charged in a more competitive market elsewhere. A well-known variant is the basing point price policy, whereby customers are charged as if the commodity originated at a certain (base) point; this can be used to protect producers in the basing point location, for commodities actually produced elsewhere will cost more. The operation of some pricing policies may involve collusion on the part of producers to maintain an artificially high price in the industry as a whole — an increasing tendency in the advanced capitalist world. (DMS)



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