Legal Definitions - Price fixing

Price fixing is an illegal agreement among competitors to control the prices of products or services, rather than letting market forces like supply and demand determine them. This can involve agreeing to raise, lower, or stabilize prices. The core principle is that businesses should compete freely, which generally benefits consumers through lower prices and better choices. When competitors collude on pricing, it undermines this free competition and is prohibited under antitrust laws because it harms consumers and the marketplace.

Price fixing can occur in two main ways:

• Horizontal Price Fixing: This happens when direct competitors at the same level of the supply chain agree on prices. For instance, two rival companies selling similar products might agree to charge the same amount.

  • Example 1: Local Moving Companies

    Imagine three independent moving companies operating in the same city. Instead of competing for customers by offering different rates, the owners meet secretly and agree to all charge a minimum of $150 per hour for their services, regardless of the distance or number of items. They also agree not to offer any discounts below this rate.

    How it illustrates price fixing: This is a case of horizontal price fixing because direct competitors (the three moving companies) are colluding to set a floor for their prices. This agreement eliminates genuine competition, preventing customers from benefiting from potentially lower rates that might arise if the companies were competing fairly.

• Vertical Price Fixing: This occurs when businesses at different levels of the supply chain agree on prices. A common scenario is when a manufacturer dictates the retail price at which its products must be sold by distributors or retailers.

  • Example 2: Designer Eyewear Brand and Retailers

    A high-end designer eyewear brand sells its frames to various optical shops and department stores. The brand implements a policy stating that any retailer selling its frames below a specific price point will have their supply cut off. This effectively forces all retailers to sell the frames at or above the brand's predetermined price, preventing them from offering competitive discounts to attract customers.

    How it illustrates price fixing: This is vertical price fixing because the manufacturer (one level of the supply chain) is controlling the retail price set by the optical shops and department stores (another level). By dictating the minimum selling price, the brand prevents retailers from independently setting their prices, thereby limiting competition among the retailers and potentially leading to higher costs for consumers.