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Price Fixing

1890
Courtroom trial for price fixing in 1890, highlighting antitrust law violations.

(generated image for illustration only)

An agreement, which can be explicit or inferred, between participants on the same side of a market to buy or sell a product or service only at a fixed price. By colluding, competitors avoid price-based competition, leading to inflated prices for consumers and reduced market efficiency. It is one of the most serious violations of antitrust law.

Price fixing is considered a ‘per se’ illegal act under the antitrust laws of most developed nations, including the Sherman Act in the United States. This means that the act itself is inherently illegal, and no defense or justification of the ‘reasonableness’ of the fixed price is permissible. The agreement harms the fundamental principles of a market economy by substituting collaboration for competition.

There are two primary types of price fixing. Horizontal price fixing occurs when the agreement is among competitors at the same level of the supply chain (e.g., two rival smartphone manufacturers). Vertical price fixing involves agreements between firms at different levels, such as a manufacturer and its distributors (also known as resale price maintenance). The agreement does not need to be written or even explicitly stated; it can be inferred from conduct, such as parallel pricing movements accompanied by other evidence of collusion (so-called ‘plus factors’). Famous cases include the lysine price-fixing conspiracy of the 1990s and various international cartels in industries ranging from vitamins to LCD panels.

UNESCO Nomenclature: 5311
– Micro-economics

Type

Abstract System

Disruption

Incremental

Usage

Widespread Use

Precursors

  • common law prohibitions against conspiracy and restraint of trade
  • Adam Smith’s observations on merchants’ tendencies to collude in ‘the wealth of nations’
  • early government attempts to regulate monopolies and trusts

Applications

  • criminal prosecution of corporate executives and firms
  • formation and regulation of cartels like opec
  • class-action lawsuits by consumers to recover overcharges
  • leniency programs that encourage whistleblowing from within a cartel
  • economic analysis to detect collusive behavior in market data

Patents:

NA

Potential Innovations Ideas

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Related to: price fixing, collusion, cartel, antitrust, sherman act, per se illegal, horizontal agreement, vertical agreement, price leadership, bid rigging.

Historical Context

Price Fixing

1890
1914
1942
1957
1957
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1965
1848
1910
1914
1950
1957
1960
1960
1970

(if date is unknown or not relevant, e.g. "fluid mechanics", a rounded estimation of its notable emergence is provided)

Related Invention, Innovation & Technical Principles

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