What Is Price Fixing?

What is Price Fixing?

Justin Haywood, Brett Kahanowitch, Aprile Mason, Emily Walls

MBA- 565-AO

April 8, 2015

Introduction/Background

What is price fixing? Price fixing can be defined as a written, verbal, or inferred from conduct among all competitors that raise or lower prices. However, “the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor” (Price Fixing, 2015) Price fixing can happen several ways. It can happen when businesses agree to set their prices really high making it where the consumer has no choice, but to pay their prices for their products. They can also, set mark-ups, sales, surcharges or discounts at the same rate. Illegal price fixing only occurs when there is an agreement between companies to fix prices.

Up until the 1800’s, the federal government encouraged growth of businesses. However, by 1888 powerful trust started to become a large part of the businesses becoming monopolies. They realized they could charge monopoly prices and rake in the extra profit for themselves. Some of the most notorious of the trust companies were the Sugar Trust, Whisky Trust, Cordage Trust, Beef Trust, Tobacco Trust, John D. Rockefeller’s Oil Trust and J.P. Morgan’s Steel Trust. The Sherman Act was enacted in 1890 to help protect companies and consumers from price fixing, “The Sherman Act prohibits any agreement among competitors to fix prices, rig bids, or engage in other anticompetitive activity” (Price Fixing, Bid Rigging and Market Allocation Schemes, 2015).

A good example of the impact of price fixing would be the freight company. Consumer goods are transported by freight. If the price of freight is artificially maintained or inflated by a cartel, it can affect the whole supply chain, and result in higher prices for all sorts of goods and services.

It is illegal for competitors to fix prices. It doesn’t matter if it is high or low. Generally price fixing occurs when two or more competitors get together to control pricing without any legitimate justification. Price-fixing schemes are hard to find because they are done secretly.

For the past 96 years, retailers have been protected under an umbrella of antitrust laws prohibiting the manufactures from establishing and maintaining minimum prices for retail and consumer goods. Price fixing eliminates or wipes out the mom and pop companies that most of America was built on. Consumers are not getting the best price when companies underhandedly price fix the service or product. Variety and choices is the key to success for the consumers. Without competition and choice of products, a stagnant economic marketplace smothers retailers' ability to offer promotions and incentives to the market.