Federal Trade Commission v. A. E. Staley Manufacturing Co.
Headline: Court upholds federal agency order blocking a supplier’s basing-point pricing system that added “phantom” freight, striking down discriminatory delivered prices and protecting local buyers and rival manufacturers.
Holding:
- Stops use of basing-point pricing that adds phantom freight to delivered prices.
- Requires sellers to verify competitor price claims before granting lower prices.
- Gives FTC authority to enforce orders against discriminatory pricing practices.
Summary
Background
A parent company and its sales subsidiary manufacture and sell glucose (corn syrup) from a plant in Decatur, Illinois. They priced deliveries using a Chicago basing point: every buyer paid the Chicago price plus freight from Chicago, even when shipping from Decatur. The Federal Trade Commission charged this system created unlawful price discriminations that hurt competition among candy and syrup makers and ordered the company to stop.
Reasoning
The Court focused on whether the company proved that its lower prices were made “in good faith” to meet a competitor’s equally low price. The company argued it simply copied competitors’ basing-point system. The Court rejected that defense, explaining the law requires proof in each instance that a seller actually lowered its price to meet a competitor. The basing-point method here created “phantom” freight and freight absorption that kept prices artificially high in some places and low in others. The Commission found the company failed to verify claims that competitors offered equally low prices, so the discounts were not shown to be in good faith.
Real world impact
The Court sustained the FTC’s order and reversed the Court of Appeals, sending instructions to enforce the cease-and-desist. The decision limits the ability of sellers to justify discriminatory basing-point pricing simply by copying competitors. Sellers must show real, verified price competition before granting lower prices, and the FTC can require companies to stop pricing practices that systematically favor certain buyers.
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