| Competition law |
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| Basic concepts |
| Anti-competitive practices |
| Enforcement authorities and organizations |
Price fixing is ananticompetitive agreement between participants on the same side in a market to buy or sell aproduct, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controllingsupply and demand.
The intent of price fixing may be to push the price of a product as high as possible, generally leading toprofits 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 aprice book orlist price; engage in cooperative priceadvertising; standardizefinancial credit terms offered to purchasers; use uniformtrade-in allowances; limitdiscounts; 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 andmarkups; impose mandatorysurcharges; purposefully reduce output or sales in order to charge higher prices; or purposefully share or pool markets, territories, or customers.
Price fixing ispermitted in some markets but not others; where allowed, it is often known asresale price maintenance orretail 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 ofagricultural 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.[1]
Inneo-classical economics, price fixing is inefficient. The anti-competitive agreement by producers to fix prices above the market price transfers some of theconsumer surplus to those producers and also results in adeadweight 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 oflysine,citric acid,graphite electrodes, and bulkvitamins.[2]
In the United States, price fixing can be prosecuted as a criminalfederal offense under Section 1 of theSherman Antitrust Act.[3]
Criminal prosecutions must be handled by theU.S. Department of Justice, but theFederal Trade Commission also has jurisdiction for civil antitrust violations. Manystate attorneys general also bringantitrust cases and have antitrust offices, such asVirginia,New York, andCalifornia. 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 theFalse Claims Act.
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.[4][5] If the case at hand also violates theFalse Claims Act of 1863, in addition to the Sherman Act, private individuals may also bring a civil action in the name of the United States under theQui Tam provision of The False Claims Act.
Under American law, exchanging prices among competitors can also violate theantitrust laws. 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.[5] Experts generally advise that competitors avoid even the appearance of agreeing on price.[5]
Since 1997, US courts have divided price fixing into two categories: vertical and horizontal maximum price fixing.[6] Vertical price fixing includes a manufacturer's attempt to control the price of its product at retail.[7] InState Oil Co. v. Khan,[8] theU.S. Supreme Court held that vertical price fixing is no longer considered aper se violation of the Sherman Act, but horizontal price fixing is still considered a breach of the Sherman Act. Also in 2008, the defendants ofUnited States v LG Display Co.,United States v. Chunghwa Picture Tubes, andUnited States v. Sharp Corporation, heard in theUnited States District Court for 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.[6]
In Canada, it is an indictable criminal offence under Section 45 of theCompetition Act.Bid rigging is considered a form of price fixing and is illegal in Canada (s.47 Competition Act).
Price fixing is illegal in Australia under theCompetition and Consumer Act 2010, with considerably similar prohibitions to the US and Canadian prohibitions. The Act is administered and enforced by theAustralian Competition & Consumer Commission. 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 law prohibits price fixing, among most other anti-competitive behaviours under theCommerce Act 1986. The act covers practices similar to that of US and Canadian law, and it is enforced by theCommerce Commission.[9][10]
Under theEU commission's leniency programme,whistleblowing firms that co-operate with the antitrust authority see their prospective penalties either wiped out or reduced.[11]
British competition law prohibits almost any attempt to fix prices.[12]
TheNet Book Agreement 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 chainDillons began discounting books, followed by rivalWaterstones.[13][14]
However, price-fixing is still legal in the magazine and newspaper distribution industry, and sometimes in the motion picture industry.[15] Retailers who sell at below cover price are subject to withdrawal of supply. TheOffice of Fair Trading has given its approval to thestatus quo.[citation needed]
When the agreement to control price is sanctioned by a multilateraltreaty or is entered by sovereign nations as opposed to individual firms, thecartel may be protected from lawsuits and criminalantitrust prosecution. That is whyOPEC, the globalpetroleum cartel, has not been prosecuted or successfully sued underUS antitrust law.
International airline tickets have their prices fixed by agreement with theIATA, a practice for which there is a specific exemption inantitrust law.[16][better source needed]
Between 1995 and 2000, music companies were found to have used illegal marketing agreements such asminimum advertised pricing to artificially inflate prices ofcompact discs in order to end price wars by discounters such asBest Buy andTarget 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,Warner Music,Bertelsmann Music Group,EMI Music,Universal Music as well as retailersMusicland,Trans World Entertainment andTower 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.
In October 2005, theKorean companySamsung pleaded guilty to conspiring with other companies, includingInfineon andHynix Semiconductor, to fix the price of dynamic random access memory (DRAM) 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 theU.S. Department of Justice with their ongoing investigation of the conspiracy.
In March 2018, theEuropean Commission fined eight firms, mostly Japanese companies, €254 million for operating an illegal price cartel forcapacitors.[17] The two largest players wereNippon Chemi-Con which was fined €98 million andHitachi Chemical which was fined €18 million.[17]
In 2006, thegovernment of France fined 13perfume brands and three vendors for price collusion between 1997 and 2000. The brands includeL'Oréal (€4.1 million),Chanel (€3.0 million),LVMH'sSephora (€9.4 million), andHutchison Whampoa'sMarionnaud (€12.8 million).[18]
In 2008 in the US,LG Display Co., Chunghwa Picture Tubes andSharp Corp., agreed to plead guilty and pay $585 million in criminal fines[19][20] for conspiring to fix prices ofliquid crystal display panels.
South Korea–basedLG Display would pay $400 million, the second-highest criminal fine that theUS 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.[21][22]
In 2010, theEU fined LG Display €215 million for its part in theLCD price fixing scheme.[23] Other companies were fined for a combined total of €648.9 million, includingChimei Innolux,AU Optronics, Chunghwa Picture Tubes Ltd., andHannStar Display Corp.[24] LG Display said it is considering appealing the fine.[25][needs update]
In late 2005/early 2006,Lufthansa andVirgin 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 wereBritish Airways,Korean Air, andAir France-KLM).U.S. Department of Justice fined the airlines a total of $1.7 billion, charged 19 executives with wrongdoing and four received prison terms.[26]
In December 2008, theNew Zealand Commerce Commission filed legal proceedings against 13 airlines in theNew Zealand High Court. According to the Commission, the carriers "colluded to raise the price of [freight] by imposing fuel charges for more than seven years".[27] In 2013Air New Zealand was the final airline of the 13 to settle.[28]
The Commission noted that it might involve up to 60 airlines.[29] In 2009 the Commission said overseas competition authorities were also investigating theair cargo market, including the US and Australia where fines had been imposed.[27]
An attempt to fix the price of tuna resulted in a $25 million fine forBumble Bee Foods in 2017 and a $100 million fine forStarKist 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.[30]
During theCOVID-19 pandemic, companies such asPfizer andModerna 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.[31]
Airlines in the 1990's were blocked by theUS Department of Justice from continuing to use software to share data on routes and prices before they became public.[32]
ProPublica in 2022 investigated the use of algorithms created byRealPage by rental companies across the United States to set rents, which critics worry has helped to raise rents by limiting competition.[32] The US DOJ escalated its investigation into price-fixing in March of 2024,[33] and filed ananti-trust lawsuit in August of 2024.[34]
It is more common to have price fixing trends during thebidding process, such as:
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.[36]
Takingfreight as an example, many products are now transported by freight through various channels. If the freight price isartificially 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.[35]
Economic liberals 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 not compete with the biggest discounter and the market winds up a monopoly anyway.[37]
