Duhaime's Law Dictionary


Delivered Pricing Definition:

A distribution arrangement which discriminates on the basis of geographic criteria.

Related Terms: Exclusive Dealing, Abuse of Dominant Position

A term of competition and antitrust law and often defined in the relevant statute such as §80-81 of Canada's Competition Act:

"Delivered pricing means the practice of refusing a customer, or a person seeking to become a customer, delivery of an article at any place in which the supplier engages in a practice of making delivery of the article to any other of the supplier’s customers on the same trade terms that would be available to the first-mentioned customer if his place of business were located in that place.

“Trade terms means terms in respect of payment, units of purchase and reasonable technical and servicing requirements."

In his 2010 commentary of Canadian competition law, James Musgrove adds:

"Delivered pricing refers to a form of geographic discrimination in a scheme of distribution....

"In a delivered pricing scheme, delivery charges are fixed or embedded in a price based on a customer's location. The customer does not have the option to take delivery from the supplier at another location where the supplier normally delivers, or at least not on terms nornmally available to customers in that other location."

In his 1983 article for the Journal Law & Economics, Dennis Carlton offered this definition:"A delivered price system is one where the price to the buyer is inclusive of transport charges and is stipulated as a function of the buyer's location. In a delivered price system, two firms would quote the identical price to a buyer even if the two firms are located at different distances from the buyer."
 

In a 1957 case, Chain Institute v. Federal Trade Commission, Justice Sanborn of the United States Court of Appeals, adopted these words

"Delivered pricing methods ... are referred to as (1) a basing point system, (2) a freight equalization system, and (3) a zone system; and thereby preventing the forces of competition from making and determining price quotations."

In the United States Court of Appeals, Justice Wallace wrote, in Boise Cascade Corp. v. Federal Trade Commission:

"The hallmark of challenged delivered pricing systems has been the industry-wide use of an artificial freight factor as a freight equalizer. Since in many industries freight is one of the important variables in the price-setting process, there is a natural tendency toward price cutting based on locational advantages, especially when production capacity exceeds demand. One way of eliminating such price competition is to create a pricing system that eliminates freight differentials as a bargaining subject....

"(A)ny delivered pricing system can become a potent tool for assuring that competitors are able to match prices and avoid the rigors of price competition. The Commission typically has challenged delivered pricing systems under a theory of conspiracy to eliminate price competition by adherence to a formula which has the effect of making their prices identical."

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