Earle, Does Price Fixing Destroy Liberty, 1920, i

Price fixing is an

anticompetitive Anti-competitive practices are business or government practices that prevent or reduce competition in a market. Antitrust laws differ among state and federal laws to ensure businesses do not engage in competitive practices that harm other, usuall ...

agreement between participants on the same side in a market to buy or sell a

product Product may refer to: Business * Product (business), an item that serves as a solution to a specific consumer problem. * Product (project management), a deliverable or set of deliverables that contribute to a business solution Mathematics * Produ ...

, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand. The intent of price fixing may be to push the price of a product as high as possible, generally leading to profits for all sellers but may also have the goal to fix, peg, discount, or stabilize prices. The defining characteristic of price fixing is any agreement regarding price, whether expressed or implied. Price fixing requires a conspiracy between sellers or buyers. The purpose is to coordinate pricing for mutual benefit of the traders. For example, manufacturers and retailers may conspire to sell at a common "retail" price; set a common minimum sales price, where sellers agree not to discount the sales price below the agreed-to minimum price; buy the product from a supplier at a specified maximum price; adhere to a price book or list price; engage in cooperative price

advertising Advertising is the practice and techniques employed to bring attention to a product or service. Advertising aims to put a product or service in the spotlight in hopes of drawing it attention from consumers. It is typically used to promote a ...

; standardize financial credit terms offered to purchasers; use uniform trade-in allowances; limit discounts; discontinue a free service or fix the price of one component of an overall service; adhere uniformly to previously-announced prices and terms of sale; establish uniform costs and markups; impose mandatory surcharges; purposefully reduce output or sales in order to charge higher prices; or purposefully share or pool markets, territories, or customers. Price fixing is permitted in some markets but not others; where allowed, it is often known as '' resale price maintenance'' or ''retail price maintenance''. Not all similar prices or price changes at the same time are price fixing. These situations are often normal market phenomena. For example, the price of

agricultural Agriculture or farming is the practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people ...

products such as wheat basically do not differ too much, because such agricultural products have no characteristics and are essentially the same, and their price will only change slightly at the same time. If a natural disaster occurs, the price of all affected wheat will rise at the same time. And the increase in consumer demand may also cause the prices of products with limited supply to rise at the same time. In neo-classical economics, price fixing is inefficient. The anti-competitive agreement by producers to fix prices above the market price transfers some of the

consumer surplus In mainstream economics, economic surplus, also known as total welfare or total social welfare or Marshallian surplus (after Alfred Marshall), is either of two related quantities: * Consumer surplus, or consumers' surplus, is the monetary gain ...

to those producers and also results in a deadweight loss. International price fixing by private entities can be prosecuted under the antitrust laws of many countries. Examples of prosecuted international cartels are those that controlled the prices and output of

lysine Lysine (symbol Lys or K) is an α-amino acid that is a precursor to many proteins. It contains an α-amino group (which is in the protonated form under biological conditions), an α-carboxylic acid group (which is in the deprotonated −CO ...

citric acid Citric acid is an organic compound with the chemical formula HOC(CO2H)(CH2CO2H)2. It is a colorless weak organic acid. It occurs naturally in citrus fruits. In biochemistry, it is an intermediate in the citric acid cycle, which occurs in t ...

graphite electrodes Graphite () is a crystalline form of the element carbon. It consists of stacked layers of graphene. Graphite occurs naturally and is the most stable form of carbon under standard conditions. Synthetic and natural graphite are consumed on larg ...

, and bulk

vitamins A vitamin is an organic molecule (or a set of molecules closely related chemically, i.e. vitamers) that is an essential micronutrient that an organism needs in small quantities for the proper functioning of its metabolism. Essential nutri ...

Legal status

United States

In the United States, price fixing can be prosecuted as a criminal federal offense under Section 1 of the

Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author. T ...

. Criminal prosecutions must be handled by the

U.S. Department of Justice The United States Department of Justice (DOJ), also known as the Justice Department, is a federal executive department of the United States government tasked with the enforcement of federal law and administration of justice in the United Stat ...

, but the

Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...

also has jurisdiction for civil antitrust violations. Many

state attorneys general The state attorney general in each of the 50 U.S. states, of the federal district, or of any of the territories is the chief legal advisor to the state government and the state's chief law enforcement officer. In some states, the attorney gener ...

also bring

antitrust Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...

cases and have antitrust offices, such as Virginia,

New York New York most commonly refers to: * New York City, the most populous city in the United States, located in the state of New York * New York (state), a state in the northeastern United States New York may also refer to: Film and television * ...

, and California. Further, where price fixing is used as an artifice to defraud a U.S. government agency into paying more than market value, the U.S. attorney may proceed under the

False Claims Act The False Claims Act (FCA), also called the "Lincoln Law", is an American federal law that imposes liability on persons and companies (typically federal contractors) who defraud governmental programs. It is the federal government's primary litig ...

. Private individuals or organizations may file lawsuits for triple damages for antitrust violations and, depending on the law, recover attorneys fees and costs expended on prosecution of a case. If the case at hand also violates the

, in addition to the Sherman Act, private individuals may also bring a civil action in the name of the United States under the Qui Tam provision of The False Claims Act. Under American law, exchanging prices among competitors can also violate the

antitrust laws Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...

. That includes exchanging prices with the intent to fix prices or the exchange affecting the prices individual competitors set. Proof that competitors have shared prices can be used as part of the evidence of an illegal price fixing agreement. Experts generally advise that competitors avoid even the appearance of agreeing on price. Since 1997, US courts have divided price fixing into two categories: vertical and horizontal maximum price fixing.Tsui, Tat Chee, Interstate Comparison – Use of Contribution Margin in Determination of Price Fixing (2011). Pace Int’l Law Review Online Companion, Vol. 1, April 2011. at https://ssrn.com/abstract=1839223 Vertical price fixing includes a manufacturer's attempt to control the price of its product at retail. In State Oil Co. v. Khan, the

US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...

held that vertical price fixing is no longer considered a ''per se'' violation of the Sherman Act, but horizontal price fixing is still considered a breach of the Sherman Act. Also in 2008, the defendants of ''United States v LG Display Co.'', ''United States v. Chunghwa Picture Tubes'', and ''United States v. Sharp Corporation'', heard in the Northern District of California, agreed to pay a total sum of $585 million to settle their prosecutions for conspiring to fix prices of liquid crystal display panels. That was the second largest amount awarded under the Sherman Act in history.

Canada

In Canada, it is an indictable criminal offence under Section 45 of the

Competition Act The ''Competition Act'' is a Canadian federal law governing competition law in Canada. The Act contains both criminal and civil provisions aimed at preventing anti-competitive practices in the marketplace. The Act is enforced and administered b ...

Bid rigging Bid rigging is a fraudulent scheme in procurement auctions resulting in non-competitive bids and can be performed by corrupt officials, by firms in an orchestrated act of collusion, or between officials and firms. This form of collusion is illegal ...

is considered a form of price fixing and is illegal in both the United States (s.1 Sherman Act) and Canada (s.47 Competition Act). In the United States, agreements to fix, raise, lower, stabilize, or otherwise set a price are illegal ''per se''. It does not matter if the price agreed upon is reasonable or for a good or altruistic cause or the agreement is unspoken and tacit. In the United States, price-fixing also includes agreements to hold prices the same, discount prices (even if based on financial need or income), set credit terms, agree on a price schedule or scale, adopt a common formula to figure prices, ban price advertising, or agree to adhere to prices that are announced. Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products.

Australia

Price fixing is illegal in Australia under the

Competition and Consumer Act 2010 The ''Competition and Consumer Act 2010'' (CCA) is an Act of the Parliament of Australia. Prior to 1 January 2011, it was known as the ''Trade Practices Act 1974'' (TPA). The Act is the legislative vehicle for competition law in Australia, an ...

, with considerably similar prohibitions to the US and Canadian prohibitions. The Act is administered and enforced by the

Australian Competition & Consumer Commission The Australian Competition and Consumer Commission (ACCC) is the chief competition regulator of the Government of Australia, located within the Department of the Treasury. It was established in 1995 with the amalgamation of the Australian Tra ...

. Section 48 of the Competition and Consumer Act 2010 (Cth) explicitly states, "A corporation shall not engage in the practise of resale price maintenance." A broader understanding of the statutory provision is in Section 96(3)of the Competition and Consumer Act 2010 (Cth), which broadly defines what can be resale price maintenance.

New Zealand

New Zealand law prohibits price fixing, among most other anti-competitive behaviours under the

Commerce Act 1986 The Commerce Act 1986 is a statute of New Zealand. It prohibits conduct that restricts competition and purchase of shares or assets where that would lessen competition in a market. As well as generally governing markets, the Act gives the Comm ...

. The act covers practices similar to that of US and Canadian law, and it is enforced by the

Commerce Commission The Commerce Commission ( mi, Te Komihana Tauhokohoko) is a New Zealand government agency with responsibility for enforcing legislation that relates to competition in the country's markets, fair trading and consumer credit contracts, and regul ...

European Union

Under the EU commission's leniency programme, whistleblowing firms that co-operate with the antitrust authority see their prospective penalties either wiped out or reduced.

United Kingdom

British competition law prohibits almost any attempt to fix prices. The

Net Book Agreement The Net Book Agreement (NBA) was a fixed book price agreement in the United Kingdom and Ireland between The Publishers Association and booksellers which set the prices at which books were to be sold to the public. The agreement was concerned sole ...

was a public agreement between UK booksellers from 1900 to 1991 to sell new books only at the recommended retail price to protect the revenues of smaller bookshops. The agreement collapsed in 1991, when the large book chain

Dillons Dillons is a grocery supermarket chain based in Hutchinson, Kansas, and is a division of Kroger. Other banners under Dillon Stores Division include Gerbes in Missouri and Baker's in Omaha, Nebraska. Dillons operates grocery stores throughout ...

began discounting books, followed by rival

Waterstones Waterstones, formerly Waterstone's, is a British book retailer that operates 311 shops, mainly in the United Kingdom and also other nearby countries. As of February 2014, it employs around 3,500 staff in the UK and Europe. An average-sized Wa ...

. However, price-fixing is still legal in the magazine and newspaper distribution industry, and sometimes in the motion picture industry. Retailers who sell at below cover price are subject to withdrawal of supply. The Office of Fair Trading has given its approval to the ''status quo''.

Exemptions

When the agreement to control price is sanctioned by a multilateral

treaty A treaty is a formal, legally binding written agreement between actors in international law. It is usually made by and between sovereign states, but can include international organizations, individuals, business entities, and other legal pers ...

or is entered by sovereign nations as opposed to individual firms, the

cartel A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mo ...

may be protected from lawsuits and criminal

prosecution. That is why OPEC, the global petroleum cartel, has not been prosecuted or successfully sued under

US antitrust law In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherma ...

. International airline tickets have their prices fixed by agreement with the

IATA The International Air Transport Association (IATA ) is a trade association of the world's airlines founded in 1945. IATA has been described as a cartel since, in addition to setting technical standards for airlines, IATA also organized tariff ...

, a practice for which there is a specific exemption in

antitrust law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...

Examples

Compact discs

Between 1995 and 2000 music companies were found to have used illegal marketing agreements such as minimum advertised pricing to artificially inflate prices of compact discs in order to end price wars by discounters such as

Best Buy Best Buy Co. Inc. is an American multinational consumer electronics retailer headquartered in Richfield, Minnesota. Originally founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store called Sound of Music, it was rebr ...

and Target in the early 1990s. It is estimated customers were overcharged by nearly $500 million and up to $5 per album. A settlement in 2002 included the music publishers and distributors;

Sony Music Sony Music Entertainment (SME), also known as simply Sony Music, is an American multinational music company. Being owned by the parent conglomerate Sony Group Corporation, it is part of the Sony Music Group, which is owned by Sony Entertainment ...

, Warner Music,

Bertelsmann Music Group Bertelsmann Music Group (BMG) was a division of a German media company Bertelsmann before its completion of sale of the majority of its assets to Sony Corporation of America on 1 October 2008. Although it was established in 1987, the music com ...

, EMI Music,

Universal Music Universal Music Group N.V. (often abbreviated as UMG and referred to as just Universal Music) is a Dutch– American multinational music corporation under Dutch law. UMG's corporate headquarters are located in Hilversum, Netherlands and its ...

as well as retailers Musicland, Trans World Entertainment and Tower Records. In restitution for price fixing they agreed to pay a $67.4 million fine distribute $75.7 million in CDs to public and non-profit groups.

Dynamic random access memory (DRAM)

In October 2005, the Korean company Samsung pleaded guilty to conspiring with other companies, including

Infineon Infineon Technologies AG is a German semiconductor manufacturer founded in 1999, when the semiconductor operations of the former parent company Siemens AG were spun off. Infineon has about 50,280 employees and is one of the ten largest semicon ...

and Hynix Semiconductor, to fix the price of dynamic random access memory (

DRAM Dynamic random-access memory (dynamic RAM or DRAM) is a type of random-access semiconductor memory that stores each bit of data in a memory cell, usually consisting of a tiny capacitor and a transistor, both typically based on metal-oxi ...

) chips. Samsung was the third company to be charged in connection with the international cartel and was fined $300 million, the second largest antitrust penalty in US history. In October 2004, four executives from Infineon, a German chip maker, received reduced sentences of 4 to 6 months in federal prison and $250,000 in fines after agreeing to aid the

with their ongoing investigation of the conspiracy.

Capacitors

In March 2018, the European Commission fined eight firms, mostly Japanese companies, €254 million for operating an illegal price cartel for

capacitors A capacitor is a device that stores electrical energy in an electric field by virtue of accumulating electric charges on two close surfaces insulated from each other. It is a passive electronic component with two terminals. The effect of a c ...

. The two largest players were Nippon Chemi-Con which was fined €98 million and

Hitachi () is a Japanese multinational conglomerate corporation headquartered in Chiyoda, Tokyo, Japan. It is the parent company of the Hitachi Group (''Hitachi Gurūpu'') and had formed part of the Nissan ''zaibatsu'' and later DKB Group and Fuyo G ...

Chemical which was fined €18 million.

Perfume

In 2006, the

government of France The Government of France ( French: ''Gouvernement français''), officially the Government of the French Republic (''Gouvernement de la République française'' ), exercises executive power in France. It is composed of the Prime Minister, who ...

fined 13

perfume Perfume (, ; french: parfum) is a mixture of fragrant essential oils or aroma compounds (fragrances), fixatives and solvents, usually in liquid form, used to give the human body, animals, food, objects, and living-spaces an agreeable scent. T ...

brands and three vendors for price collusion between 1997 and 2000. The brands include L'Oréal (€4.1 million), ''Pacific Creation Perfumes'' (€90,000),

Chanel Chanel ( , ) is a French high-end luxury fashion house founded in 1910 by Coco Chanel in Paris. Chanel specializes in women's ready-to-wear, luxury goods, and accessories and licenses its name and branding to Luxottica for eyewear. Chanel is ...

, LVMH's Sephora (€9.4 million) and Hutchison Whampoa's ''Marionnaud'' (€12.8 million).

Liquid crystal displays

In 2008 in the US, 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. South Korea–based LG Display would pay $400 million, the second-highest criminal fine that the US Justice Department antitrust division has ever imposed. Chunghwa would pay $65 million for conspiring with LG Display and other unnamed companies and Sharp would pay $120 million, according to the department. In 2010, the EU fined LG Display €215 million for its part in the LCD price fixing scheme. Other companies were fined for a combined total of €648.9 million, including Chimei Innolux,

AU Optronics AUO Corporation (AUO; ) is a Taiwanese company that specialises in optoelectronic solutions. It was formed in September 2001 by the merger of Acer Display Technology, Inc. (the predecessor of AUO, established in 1996) and Unipac Optoelectronics Cor ...

, Chunghwa Picture Tubes Ltd., and HannStar Display Corp. LG Display said it is considering appealing the fine.

Air cargo market

In late 2005/early 2006, Lufthansa and Virgin Atlantic came forward about their involvement in large price-fixing schemes for cargo and passenger surcharges in which 21 airlines were involved since 2000 (amongst which were

British Airways British Airways (BA) is the flag carrier airline of the United Kingdom. It is headquartered in London, England, near its main hub at Heathrow Airport. The airline is the second largest UK-based carrier, based on fleet size and passengers ca ...

, Korean Air, and

Air France-KLM The atmosphere of Earth is the layer of gases, known collectively as air, retained by Earth's gravity that surrounds the planet and forms its planetary atmosphere. The atmosphere of Earth protects life on Earth by creating pressure allowing for ...

fined the airlines a total of $1.7 billion, charged 19 executives with wrongdoing and four received prison terms. In December 2008, the

New Zealand Commerce Commission The Commerce Commission ( mi, Te Komihana Tauhokohoko) is a New Zealand government agency with responsibility for enforcing legislation that relates to competition in the country's markets, fair trading and consumer credit contracts, and regu ...

filed legal proceedings against 13 airlines in the

New Zealand High Court The High Court of New Zealand ( mi, Te Kōti Matua o Aotearoa) is the superior court of New Zealand. It has general jurisdiction and responsibility, under the Senior Courts Act 2016, as well as the High Court Rules 2016, for the administration ...

. According to the Commission, the carriers "colluded to raise the price of reightby imposing fuel charges for more than seven years". In 2013

Air New Zealand Air New Zealand Limited () is the flag carrier airline of New Zealand. Based in Auckland, the airline operates scheduled passenger flights to 20 domestic and 30 international destinations in 18 countries, primarily around and within the Pacifi ...

was the final airline of the 13 to settle. The Commission noted that it might involve up to 60 airlines. In 2009 the Commission said overseas competition authorities were also investigating the

air cargo Air cargo is any property carried or to be carried in an aircraft. Air cargo comprises air freight, air express and airmail. Aircraft types Different cargo can be transported by passenger, cargo or combi aircraft: * Passenger aircraft use the ...

market, including the US and Australia where fines had been imposed.

Tuna

An attempt to fix the price of tuna resulted in a $25 million fine for

Bumble Bee Foods Bumble Bee Foods, LLC, is a company that produces canned tuna, salmon, other seafoods, and chicken under the brand names "Bumble Bee," "Wild Selections," "Beach Cliff," "Brunswick," and "Snow's." The brand is marketed as " Clover Leaf" in Can ...

in 2017 and a $100 million fine for

StarKist StarKist Tuna is a brand of tuna produced by StarKist Co., an American company formerly based in Pittsburgh's North Shore that is now wholly owned by Dongwon Industries of South Korea. It was purchased by Dongwon from the American food manufactu ...

in 2020. Christopher Lischewski, the former CEO of Bumble Bee, was sentenced to 40 months in jail and fined $100,000 for his 2010–2013 involvement.

Coronavirus vaccine

During the COVID-19 pandemic, companies such as Pfizer and

Moderna Moderna, Inc. ( ) is an American pharmaceutical and biotechnology company based in Cambridge, Massachusetts that focuses on RNA therapeutics, primarily mRNA vaccines. These vaccines use a copy of a molecule called messenger RNA (mRNA) to produ ...

announced rates for their coronavirus vaccines that would differ based on deals established with various governments. Executive orders were enacted in the United States to lower prescription drug costs which was claimed by Pfizer's CEO to cause "enormous destruction" to the pharmaceutical industry.

Signs of possible price fixing during
bidding Bidding is an offer (often competitive) to set a price tag by an individual or business for a product or service ''or'' a demand that something be done. Bidding is used to determine the cost or value of something. Bidding can be performed b ...

It is more common to have price fixing trends during the bidding process, such as: * If the bid or quoted price is much higher than expected, the reason may be collusive to set the price or just overpriced, but it is legal in itself. * If all suppliers choose to increase prices at the same time, it is beyond the scope of input cost changes. * If the price of a new supplier is lower than the usual corporate bidding price, the reason may be that there is a

collusion Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading or defrauding others of their legal right. Collusion is not always considered illegal. It can be used to att ...

of bidding among existing companies. * If the price of a new supplier drops significantly after bidding, the reason may be that some suppliers have been colluding and the new supplier has forced them to compete.

Impact of price fixing

When prices are determined between various companies, it may affect consumers' choices to a certain extent, and affect small businesses that rely on these suppliers. Taking

freight Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, including tran ...

as an example, many products are now transported by freight through various channels. If the freight price is

artificially Artificiality (the state of being artificial or manmade) is the state of being the product of intentional human manufacture, rather than occurring naturally through processes not involving or requiring human activity. Connotations Artificiality ...

increased, it will have an impact on the entire supply chain. For example, it will cause the price of goods and services to increase, and it will also affect consumers' choices.

Criticism on legislation

Economic liberals Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberalism, ...

believe that price fixing is a voluntary and consensual activity between parties that should be free from government compulsion and government interference. At times price fixing ensures a stable market for both consumers and producers. Any short-term benefit of increased price competition will force some producers out of the market and cause product shortages and prices for consumers to rise. 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 a monopoly anyway.

References

External links

Sticker Shock, Guilty Pleas Show High Cost of Price-Fixing in Auto Industry

UK Business Link - Price fixing, cartels and monopolies

* ttp://www.joystiq.com/entry/1234000990068106/ SONY Accused of Price Fixing in the UK - November 15, 2005
Antitrust Enforcement

* ttp://www.usdoj.gov/opa/pr/2005/October/05_at_540.html US Department of Justice Website, Samsung Pleads Guilty to Price Fixing - October 5, 2005
US Department of Justice Website, Infineon Pleads Guilty to Price Fixing - October 2004

Antitrust settlement in Nevada price-fixing case

''Forbes'' * ttp://todoproductosfinancieros.com/fixing/ Concepto de Fixing en Español {{DEFAULTSORT:Price Fixing Pricing controversies Commercial crimes Anti-competitive practices