Price fixing

Price Fixing: A Hidden Threat to Market Fairness

Imagine a bustling marketplace where everyone is supposed to play by the same rules, but some players secretly collude to manipulate prices for their own gain. That’s price fixing in action. It’s like a game of hide-and-seek, but instead of finding a hiding spot, companies are trying to keep their pricing strategies secret from competitors and consumers alike. This practice is not only unethical; it can also have serious consequences for the market as a whole.

The Mechanics of Price Fixing

Price fixing occurs when sellers or buyers come together in an agreement to control prices, often with the goal of driving them up to increase profits. It’s like a group of friends deciding to all charge the same price for their lemonade stand, ensuring that no one can undercut the others and steal customers away.

Examples of price fixing include setting common retail prices, minimum sales prices, buying at specified maximum prices, adhering to price books, cooperative price advertising, and standardizing financial credit terms. These practices are designed to maintain a level playing field for all participants, but in reality, they can stifle competition and harm consumers.

Legal and Ethical Considerations

The legality of price fixing varies by jurisdiction. In some markets, it is permitted under the guise of resale price maintenance or retail price maintenance. However, neo-classical economists argue that such practices are inefficient, leading to a deadweight loss where consumer surplus is transferred to producers.

International price fixing can be prosecuted under antitrust laws in many countries. For instance, in the United States, price fixing can be prosecuted as a criminal federal offense under Section 1 of the Sherman Antitrust Act. Private individuals or organizations may file lawsuits for triple damages and recover attorneys’ fees and costs.

Experts advise against agreeing on prices, as proof that competitors have shared prices can be used as evidence of an illegal price fixing agreement. US courts divide price fixing into vertical and horizontal maximum price fixing categories, with horizontal price fixing considered a breach of the Sherman Act.

Global Impact

The impact of price fixing is felt worldwide. In Canada, bid rigging is an indictable criminal offence under Section 45 of the Competition Act. In Australia, the Competition and Consumer Act 2010 prohibits resale price maintenance. New Zealand law also prohibits price fixing under the Commerce Act 1986.

The European Union has a leniency programme for whistleblowing firms that cooperate with the antitrust authority. British competition law prohibits almost any attempt to fix prices, but it is legal in certain industries such as magazine and newspaper distribution. When the agreement to control price is sanctioned by a multilateral treaty or entered by sovereign nations, cartels may be protected from lawsuits and criminal antitrust prosecution.

International airline tickets have prices fixed by IATA, which is exempt from antitrust laws. Music companies were found to use illegal marketing agreements that artificially inflated the prices of compact discs. A settlement included music publishers and distributors paying a $67.4 million fine and distributing CDs to public and non-profit groups.

Samsung pleaded guilty to conspiring with other companies to fix the price of DRAM chips, and was fined $300 million. The European Commission fined eight firms €254 million for operating an illegal price cartel for capacitors. The government of France fined 13 perfume brands €51.4 million for price collusion between 1997 and 2000.

LG Display Co., Chunghwa Picture Tubes, and Sharp Corp. agreed to plead guilty and pay $585 million in criminal fines for conspiring to fix prices of liquid crystal display panels. The EU fined LG Display €215 million for its part in the LCD price fixing scheme. Lufthansa, Virgin Atlantic, British Airways, Korean Air, Air France-KLM, Bumble Bee Foods, StarKist, Pfizer, and Moderna are just a few examples of companies that have faced legal consequences for their involvement in price-fixing schemes.

Conclusion

In the end, price fixing legislation forces producers out of a market because it can’t compete with the biggest discounter, and the market winds up as a monopoly anyway. It’s like trying to build a sandcastle on someone else’s beach; no matter how hard you try, you’re always going to be at a disadvantage.