BASING-POINT PRICING AND INCOMPLETE COLLUSION*

ABSTRACT. 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.