Price Fixing

Definition

Price fixing is an anticompetitive practice where competitors agree to set the prices of their products or services at a certain level, rather than allowing market forces to determine the prices. This practice is illegal under antitrust laws as it eliminates competition and harms consumers.

5 Must Know Facts For Your Next Test

1. Price fixing is considered a per se violation of antitrust laws, meaning it is automatically illegal without the need to prove harm to competition.
2. Price fixing can take many forms, including setting minimum prices, agreeing on a price range, or coordinating price increases across competitors.
3. The Sherman Antitrust Act of 1890 was one of the first major pieces of legislation in the United States to outlaw price fixing and other monopolistic practices.
4. Price fixing can lead to higher prices, reduced consumer choice, and a lack of innovation in the affected market.
5. Enforcement of price fixing laws is a key responsibility of government agencies like the Federal Trade Commission and the Department of Justice.

Review Questions

• Explain how price fixing relates to the concept of common business crimes.
  • Price fixing is considered a common business crime because it is an anticompetitive practice that violates antitrust laws. By conspiring to set prices at artificial levels, businesses engage in collusion that harms consumers and the broader market. Price fixing is a per se violation, meaning it is automatically illegal without the need to prove harm to competition. As such, it is one of the most egregious forms of white-collar crime that business leaders must avoid to maintain legal and ethical practices.
• Describe the historical context of price fixing within the development of antitrust law.
  • The practice of price fixing has been a major focus of antitrust legislation since the late 19th century. The Sherman Antitrust Act of 1890 was one of the first major laws in the United States to explicitly prohibit price fixing and other monopolistic behaviors. Over time, additional antitrust laws like the Clayton Act and the Federal Trade Commission Act have strengthened the legal framework for addressing price fixing and other anti-competitive practices. The historical evolution of antitrust law reflects the ongoing effort to promote fair competition and protect consumers from the harms of collusive pricing agreements between businesses.
• Evaluate the potential impacts of price fixing on the broader economy and society.
  • Price fixing can have far-reaching negative consequences for the economy and society as a whole. By eliminating competition and allowing businesses to artificially inflate prices, price fixing deprives consumers of choice and fair market prices. This can lead to reduced innovation, as businesses lack the incentive to improve products or services. Additionally, the higher prices stemming from price fixing can place an undue burden on individual consumers and households, reducing their purchasing power and standard of living. From a macroeconomic perspective, price fixing distorts market signals and resource allocation, hampering overall economic efficiency and growth. As such, the prevention and prosecution of price fixing is a critical component of maintaining a healthy, competitive economic system that serves the interests of both businesses and consumers.

Related terms

Collusion: The act of two or more parties secretly collaborating to limit competition and influence prices, often in violation of antitrust laws.

Monopoly: A market condition where a single seller controls the entire supply of a good or service, allowing them to dictate prices and restrict competition.

Antitrust Law: Legislation designed to promote fair competition in the marketplace by prohibiting monopolistic practices and other anti-competitive behaviors.