Price fixing

From Academic Kids

Any agreement between business competitors regarding price is considered price fixing and is illegal in many countries.

Methods of price fixing can include;

  • Agreements to adhere to a price book.
  • Agreements to engage in cooperative price advertising.
  • Agreements to standardize credit terms offered to purchasers.
  • Agreements to use uniform trade-in allowances.
  • Agreements to limit discounts.
  • Agreements to discontinue free service or to fix any other element of prices.
  • Agreements to adhere to previously announced prices and terms of sale.
  • Agreements establishing uniform costs and markups.
  • Agreements imposing mandatory surcharges.
  • Agreements to reduce output or sales.
  • Agreements to share markets, territories, or customers.

American law is very specific that price fixing is only illegal if it happens via communication and specific agreement between firms. It is not illegal for firms to copy the price moves of a de facto market leader as is the case with prices of cereals and cigarettes. Critics say that this rule makes the government not able to stop the majority of price fixing which harms consumers.

Bid rigging is sometimes regarded as price fixing.

Price fixing is often practiced internationally. When the agreement to control price is sanctioned by a multilateral treaty or protected by national sovereignty, no antitrust actions may be initiated. Examples of such price fixing include oil whose price is controlled by OPEC. Also international airline tickets have prices fixed by agreement with the IATA, a practice for which there is a specific exception in antitrust law.

International price fixing by private entities can be prosecuted under the antitrust laws of most countries. Examples of prosecuted international cartels are lysine, citric acid, graphite electrodes, and bulk vitamins. (source: http://agecon.lib.umn.edu/cgi-bin/pdf_view.pl?paperid=5488&ftype=.pdf)

There are persistent allegations that the record industry engages in price fixing as a standard business practice. Although illegal, one example of the possible reasoning runs as follows:

  • price fixing keeps CDs in the United States artificially expensive to the tune of $480 million since 1997 (source: [1] (http://www.usatoday.com/life/music/news/2002-09-30-cd-settlement_x.htm))
  • the states file a lawsuit
  • the record companies settle the lawsuit for a fine of $67.4 million and distribute $75.7 million in CDs (source: as above)
  • $480m - ($67.4m + $75.7m) = $336.9m profit.

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