Price fixing

Price fixing is an unfair agreement between companies to set a specific price for a product or service. Instead of competing with each other, they team up to keep prices high so they can all make more money. This is usually illegal because it cheats customers out of fair prices.

It's important to remember that just because prices are similar doesn't always mean price fixing is happening. For example, the price of milk is often about the same in different stores because the costs to produce and transport it are similar for everyone. Prices might also rise everywhere at once if there's a shortage of a product.

What Is Price Fixing?

Price fixing happens when businesses that should be competing against each other make a secret deal. The main goal is to control the price of something for their own benefit.

How Does It Work?

Companies can fix prices in several ways. They might agree to:

• Sell a product at the same "retail price."
• Set a minimum price and promise not to sell for less.
• Get rid of discounts or free services.
• Limit how much of a product they make, so the lower supply drives up the price.
• Divide up customers or areas, so they don't have to compete in the same places.

Any agreement, whether it's spoken or just understood, that stops companies from competing on price can be considered price fixing.

Why Is Price Fixing a Problem?

In a healthy market, competition pushes businesses to offer better products and lower prices to attract customers. Price fixing destroys this competition.

When companies fix prices, customers lose out. They end up paying more for things than they should. It also hurts honest businesses that are trying to compete fairly. Without competition, companies have less reason to innovate or improve their services.

Is Price Fixing Illegal?

Yes, in most parts of the world, price fixing is illegal. Many countries have laws, often called antitrust or competition laws, to prevent unfair business practices like this. These laws are designed to protect consumers and make sure the market is fair for everyone.

Laws Around the World

• United States: In the U.S., price fixing is a serious offense. Government groups like the U.S. Department of Justice and the Federal Trade Commission investigate companies suspected of fixing prices.
• Canada: Canada also has strict laws against price fixing under its Competition Act.
• Europe and the UK: The European Union and the United Kingdom have strong rules that prohibit companies from making agreements that harm competition.
• Australia and New Zealand: Both countries have laws that make price fixing illegal, which are enforced by special government commissions.

In some very rare cases, certain price agreements are allowed, but these are exceptions and not the rule.

Real-Life Examples of Price Fixing

Over the years, many companies have been caught fixing prices and have had to pay large fines.

Music CDs

In the late 1990s, several major music companies and retailers made secret agreements to keep the price of compact discs high. They wanted to stop price wars between big stores like Best Buy and Target. It was estimated that customers were overcharged by almost $500 million. In 2002, companies like Sony Music and Warner Music had to pay millions in fines and give away free CDs to settle the case.

Computer Memory Chips

In the early 2000s, some of the world's biggest makers of dynamic random access memory (DRAM) chips, which are used in computers, were caught in a price-fixing scheme. Companies like Samsung, Infineon, and Hynix agreed to fix the prices of these chips. In 2005, Samsung was fined $300 million. Some executives involved also faced serious consequences for breaking the law.

Canned Tuna

An attempt to fix the price of canned tuna in the United States led to big fines for major brands. In 2017, Bumble Bee Foods was fined $25 million, and in 2020, StarKist was fined $100 million. The former head of one company also faced penalties for his role in the scheme.

Other Cases

• Liquid Crystal Displays (LCDs): In 2008, companies including LG Display and Sharp were fined a total of $585 million for fixing the prices of LCD panels used in TVs and computer monitors.
• Air Cargo: For several years, more than 20 major airlines secretly agreed to add extra fuel surcharges to cargo shipments. This meant it cost more to ship goods by air. The airlines were fined over $1.7 billion in total.

How Can You Spot Price Fixing?

It can be hard to know for sure if price fixing is happening, but here are some signs that experts look for:

• All companies raise their prices at the same time and by the same amount, especially when their costs haven't changed.
• A new company enters the market with a much lower price, and the established companies suddenly drop their prices to match.
• Companies seem to take turns winning bids for projects, or a company that wins a bid hires its "competitors" as subcontractors.

See also