Deminor Wiki - Price Fixing

Read below for a definition of the term: "Price Fixing".

What do we mean when we say "Price Fixing"?

Price fixing is an illegal anticompetitive practice where competing businesses agree on setting prices for their products or services rather than letting market forces determine them. This practice undermines competition, leads to higher prices, reduces consumer choice, and stifles innovation. Price fixing is prohibited under antitrust laws in many jurisdictions because it violates the principles of free and fair competition.

Types of Price Fixing

Horizontal Price Fixing:

Horizontal price fixing occurs when competitors at the same level of the supply chain agree to set prices. This can include agreements to fix prices, establish minimum prices, or set price floors. For example, several electronics manufacturers agreeing to sell a particular type of television at the same price would be considered horizontal price fixing.

Vertical Price Fixing:

Vertical price fixing involves agreements between different levels of the supply chain, such as between a manufacturer and its retailers. This can include setting minimum resale prices (resale price maintenance) or controlling discounts offered by retailers. For example, a manufacturer requiring all retailers to sell its product at no less than a certain price would constitute vertical price fixing.

Legal Framework and Enforcement

United States:

In the U.S., price fixing is prohibited under several federal laws, primarily the Sherman Antitrust Act. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) are responsible for investigating and prosecuting antitrust violations, including price fixing.

  1. Sherman Antitrust Act: Section 1 of the Sherman Act prohibits any contract, combination, or conspiracy in restraint of trade. Price fixing is considered a per se violation, meaning it is inherently illegal without the need for further analysis of its impact on competition.
  2. Federal Trade Commission Act: This act prohibits unfair methods of competition, which include price fixing and other forms of collusion.

European Union:

In the EU, price fixing is addressed under Article 101 of the Treaty on the Functioning of the European Union (TFEU). The European Commission, along with National Competition Authorities (NCAs), enforces these regulations.

  • Article 101 TFEU: This article prohibits agreements, decisions, and concerted practices that prevent, restrict, or distort competition within the internal market. Price fixing is a clear violation of this provision.

International Enforcement

International cooperation is essential for tackling price fixing, especially in cross-border cases. Various international bodies and agreements facilitate collaboration between national antitrust authorities:

  1. International Competition Network (ICN): The ICN provides a forum for antitrust authorities to share information and coordinate efforts against anticompetitive practices, including price fixing.
  2. OECD Guidelines: The Organisation for Economic Co-operation and Development (OECD) provides guidelines and best practices for combating price fixing, promoting cooperation and enforcement among member countries.

Detection and Prevention

Detection:

Detecting price fixing requires vigilance and thorough investigation. Common indicators include:

  1. Identical Pricing: Unexplained uniformity in prices across competitors, especially in markets where prices would typically vary.
  2. Parallel Conduct: Competitors making simultaneous price changes or adopting identical pricing policies without clear economic justification.
  3. Communication Evidence: Discovery of communication between competitors discussing prices, often uncovered through emails, meetings, or other forms of correspondence.

Prevention:

Preventing price fixing involves implementing robust policies and procedures:

  1. Antitrust Compliance Programs: Companies should establish internal compliance programs to educate employees about antitrust laws and encourage reporting of suspicious activities.
  2. Regular Audits and Monitoring: Conducting regular audits and monitoring market behaviour can help identify and address potential anticompetitive practices.
  3. Training and Awareness: Educating employees, especially those involved in pricing decisions, about the risks and legal consequences of price fixing can deter such behaviour.

Penalties for Price Fixing

Penalties for price fixing can be severe and may include:

  1. Fines: Companies found guilty of price fixing can face substantial fines. In the U.S., fines can reach up to $100 million for corporations and $1 million for individuals. The EU can impose fines up to 10% of a company's global turnover.
  2. Imprisonment: Individuals involved in price fixing can face prison sentences. In the U.S., individuals can be sentenced to up to 10 years in prison.
  3. Damages: Victims of price fixing can seek damages through civil lawsuits. In the U.S., damages can be trebled (tripled) under antitrust laws.
  4. Debarment: Companies and individuals found guilty of price fixing may be debarred from participating in future government contracts, significantly impacting their business operations.

Key Cases

United States:

  1. United States v. Socony-Vacuum Oil Co. (1940): The Supreme Court held that price fixing is illegal per se under the Sherman Act. The case involved a group of oil companies that conspired to fix the price of gasoline.
  2. United States v. Apple Inc. (2013): Apple and several publishers were found guilty of conspiring to fix the prices of e-books. The court ruled that Apple facilitated a horizontal price-fixing conspiracy among the publishers.

European Union:

  1. European Commission v. LCD Manufacturers (2010): The European Commission fined six LCD panel manufacturers €648 million for participating in a cartel that fixed prices for LCD panels used in televisions, computer monitors, and notebooks.
  2. European Commission v. Truck Manufacturers (2016): The European Commission imposed a record €2.93 billion fine on several truck manufacturers for price fixing and colluding on the timing and passing on of costs for the introduction of new emission technologies.

Conclusion

Price fixing is a serious antitrust violation that undermines competitive markets, leads to higher prices, and harms consumers. Effective detection, prevention, and enforcement are crucial to combating price fixing. Governments, antitrust authorities, and businesses must work together to ensure fair and competitive markets, promoting innovation and protecting consumer interests. Understanding the legal framework, potential penalties, and preventive measures can help stakeholders navigate the complexities of price fixing and foster a competitive business environment.