Price is a key element of an open-market economy because it allows for healthy competition between businesses in all industries. Competition makes life easier for consumers because it provides them with a market with more options and less trouble spending money. However, some businesses try to manipulate prices for their gain, using tactics such as price-fixing.
Price fixing is when two competing companies agree to raise, lower, or stabilize prices to control supply and demand. In doing so, they gain more profit because it forces consumers to spend more than they’re willing to. Moreover, it affects consumers heavily because they’re the ones on the receiving end of this scheme.
Price fixing is often a secret agreement between competitors but can be found with circumstantial evidence, although it can be difficult to prove. You can report price-fixing to hold businesses liable once you prove it. Learn things consumers must know about price fixing in this blog to be informed.
Types of price fixing
Now that you know its definition, now you have to learn the different types of price fixing. These are the ways in how companies do price fixing to manipulate supply and demand to their favor:
Horizontal price fixing
This type of price fixing is an agreement among competitors of a particular product. When they agree to set a minimum or maximum price for their products, it increases their chances of earning more profit since they’re the most credible and popular brands in their industry. Furthermore, since they stand on top amongst their competitors, consumers will buy their products even if they set ridiculously high or extremely low prices.
Vertical price fixing
This type of price fixing is an agreement among the members of the supply chain. The supply chain is a key player in commerce because if it experiences issues, an entire market could move to the verge of collapse. This happens when manufacturers, producers, retailers conspire to set prices to gain more profit from other businesses who need their products.
Price freezing is a government-enforced price fixing method. A government may impose a price freeze to stop inflation, making it difficult for consumers to buy basic needs. Once it’s implemented, sellers won’t be able to increase the prices of commodities.
Ways consumers can combat price fixing
Price fixing is generally an illegal practice that two or more businesses in the same industry commit. As mentioned previously, it hurts consumers because it disrupts supply and demand, which hinders fair competition in an open-market economy. That’s why laws are enacted to prosecute businesses that are proven to conspire to fix product prices.
Antitrust laws limit the power of a business or firm. Under the scope of these laws, price fixing is an illegal practice that gives businesses more power than they should have in a market. Therefore, it violates antitrust and is punishable by law, and consumers, including other businesses in the same market, can file a class action lawsuit against the colluding parties.
Different countries have their version of antitrust laws or similar ones that regulate prices. In the U.S., the Sherman Act of 1890 is an antitrust law that prohibits collusion between companies.
However, people find it difficult to prove price fixing in court because there are different ways accused parties can navigate their way around it. Even so, consumers can still fight against it by making it infeasible. An example of this is opting to purchase substitute products or services at affordable prices.
That way, consumers can lower the demand for the products or services with fixed prices.
As consumers, it’s our right to purchase products and services at prices we are willing to pay. Fair pricing is a violation of that right and shouldn’t be tolerated. Know that we hold the power, and these businesses should treat us well because they need us to succeed.
Deinah Storm used to work in the corporate world as a marketing affiliate. She quit her job to pursue her passion for writing, but to this day, Deinah is committed to educating consumers about the different marketing scams and how to avoid them.