Price fixing

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Price fixing is an informal agreement between direct business competitors selling the same product regarding that product's pricing. In general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to windfall profits for all the sellers. For the buyer, meanwhile, the practice results in a phenomenon similar to price gouging.

Methods of price fixing can include selling at a common target price; setting a common "minimum" price; buying the product from a supplier at a specified "maximum" price; adhering to a price book or list price; engagment in cooperative price advertising; standardizing financial credit terms offered to purchasers; using uniform trade-in allowances; limiting discounts; discontinuing a free service or fixing the price of one component of an overall service; adhering uniformly to previously-announced prices and terms of sale; establishing uniform costs and markups; imposing mandatory surcharges; purposefully reducing output or sales; or purposefully sharing or "pooling" markets, territories, or customers.

Generally, price fixing is illegal, but it may nevertheless be tolerated or even sanctioned by some governments at various times, particularly among those whose countries are developing economies.

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Price-fixing in the United States and Canada

The United States and Canada are the only two countries in the world where price fixing can be prosecuted as a felony. Bid rigging is considered a form of price fixing and is illegal in the United States.

Under U.S. law, price fixing is only illegal if it is intentional and comes about via communication and specific agreement between firms. It is not illegal for a firm to copy the price movements of a de facto market leader called price leadership, which has been seen to be the case in markets for breakfast cereals and cigarettes. The United States Department of Justice Antitrust Division is responsible for upholding United States price fixing laws; see also Sherman Antitrust Act). As of 2004 under US law corporations may be fined up to $100 million for criminal price fixing; individuals can be charged and sentenced to prison sentences of up to 10 years for price-fixing violations. The Federal Trade Commission can prosecute firms for price fixing as a civil matter.

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Price-fixing cases in the rest of the world

In countries other than the United States and Canada, price-fixing is not usually illegal and is often practiced. When the agreement to control price is sanctioned by a multilateral treaty or is entered by sovereign nations as opposed to individual firms, the cartel may be protected from lawsuits and criminal antitrust prosecution. This explains, for example, why OPEC, the global oil cartel, has not been prosecuted or successfully sued under U.S. antitrust law. International airline tickets have their prices fixed by agreement with the IATA, a practice for which there is a specific exemption in antitrust law.

In October 2005, the Korean company Samsung pleaded guilty to conspiring with other companies, including Infineon and Hynix 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 slapped with a $300M fine, 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 DoJ with their ongoing investigation of the conspiracy.

In 2006, the Government of France fined 13 perfume brands and three vendors for price collusion between 1997 and 2000. The brands include L'Oreal (4.1m euro), Pacific Creation Perfumes (90,000 euro), Chanel, LVMH's Sephora (9.4mill euro) and Hutchison Whampoa's Marionnaud (12.8mil euro).[1] 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, citric acid, graphite electrodes, and bulk vitamins. [2]

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See also

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External links

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