| Competition law is a series of rules and regulations which seeks to maintain fair competition in an open market and regulate anti-competitive conduct by companies. One of the key aspects of competition law is price fixing. This is an illegal activity that can result in huge fines, criminal convictions and imprisonment. Show
What is price fixing?Price-fixing is agreeing with a competitor what price customers will be charged. It can also include agreements not to sell something below a minimum price or agreeing not to undercut a competitor. Price-fixing leads to inflated prices and customers being overcharged. 4 types of price-fixing:There are several types of price-fixing:
Price fixing doesn’t always have to involve agreements to set the same price. Businesses can also be guilty of price fixing if they:
Who is covered by price fixing regulations?Competition law applies to online markets as well as traditional sellers. It also applies equally to small businesses as well as large ones. Discussing prices with competitorsYou must not discuss the prices you’re going to charge your customers with your competitors. You’ll be breaking the law if you agree with another business:
Resale price maintenanceResale price maintenance (RPM) is where a supplier and a retailer agree that the retailer will not resell the supplier’s products for less than a set price. This does not include recommended resale prices (RRP), as long as the retailer can still resell at a price it wants and there are no threats or incentives. RPM is often indirect. A supplier may impose restrictions on how far its product can be discounted, impose so-called ‘minimum advertised price policies’ or make threats if a certain price is not maintained. Do not agree with suppliers to fixed or minimum retail prices and do not exert pressure for distributors to adhere to a minimum price. Price announcementsUnilateral price announcements could amount to a breach of Competition Law where competitor responses to those announcements demonstrate evidence of a strategy for coordinating prices or behaviour. Generic price announcement letters are generally not allowed. This stems from an investigation into the cement industry in 2012 where the Competition Commission (forerunner to the Competition and Markets Authority) found that price announcement letters could serve anti-competitive purposes by signalling the desired direction of prices and softening customer resistance. Instead, price announcement letters must be specific and relevant to the customer receiving it. To avoid falling foul of price announcements:
Examples of high-profile price fixing scandalsLarge businesses are not immune to competition law and over the past six months, millions in fines have been handed out to companies for price fixing. Here are some of the highest-profile price fixing scandals:
Is price fixing illegal?In many jurisdictions, including the United States, Canada, and the UK, price fixing is illegal. This would include any agreement among competitors to fix prices, whether the agreement is to lower or raise prices, or keep them at a certain fixed rate. Whenever competitors do any of the above without a legitimate justification, this would be considered illegal. In the US, the antitrust law that forbids price fixing and other anti-competitive behaviour is the Sherman Act. The scope of the Sherman Law was later expanded in the Clayton Antitrust Act and then in the Robinson–Patman Act. The Sherman Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.” The Sherman Act does not prohibit every restraint of trade, only those that are unreasonable. For instance, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably. This will be determined based on whether the restraint on trade is reasonably related to a legitimate purpose. However, certain acts are considered so harmful to competition that they are almost always illegal. These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids. These acts are “per se” violations of the Sherman Act; in other words, no defense or justification is allowed. In the UK, anti-competitive behaviour is prohibited by the Competition Act 1998 and the Enterprise Act 2002. UK businesses are also governed by Articles 101 and 102 of The Treaty on the Functioning of the European Union (TFEU) as it relates to competition in EU markets. After Brexit, Articles 101 and 102 of TFEU will continue to apply to UK businesses as they would to a US company engaging in conduct affecting an EU market. However the European Commission cannot carry out an on-site investigation in a non EU country, nor require the national regulator to do so. The UK government has no plans to make ‘fundamental changes’ to the competition law framework. Existing EU rules will be transposed into UK law with EU Withdrawal legislation. Why is price fixing harmful?Price fixing upsets the normal laws of supply and demand: it is anti-competitive and ultimately hurts consumers and businesses. It is harmful to customers because it often means higher prices, and it is harmful to businesses as it gives monopolies an advantage over competitors. Smaller companies can be squeezed out of the market and it is difficult for new companies to enter. VinciWorks’ competition law course includes price fixing module VinciWorks’ latest competition law course, Competition Law: Know Your Market, includes a full module on price fixing, presenting interactive scenarios whereby users will need to assess whether or not price fixing may be occurring. What is it called when firms get together and fix prices of production levels?An oligopoly is when a few companies exert significant control over a given market. Together, these companies may control prices by colluding with each other, ultimately providing uncompetitive prices in the market.
Why price fixing is illegal?When competitors reach an agreement, this type of agreement in restraint of trade is illegal under antitrust laws provided it may lead to higher prices or elimination of competitors, therefore harming consumers.
What are the 3 types of collusion?Types of collusion. Formal collusion – when firms make formal agreement to stick to high prices. This can involve the creation of a cartel. ... . Tacit collusion – where firms make informal agreements or collude without actually speaking to their rivals. ... . Price leadership.. Which law states that price fixing is illegal?The Sherman Act prohibits any agreement among competitors to fix prices, rig bids, or engage in other anticompetitive activity. Criminal prosecution of Sherman Act violations is the responsibility of the Antitrust Division of the United States Department of Justice.
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