What it is:
Price fixing is an agreement among businesses to sell the same product or service at the same price.
How it works (Example):
Price fixing involves the cooperation among two or more business competitors to set or stabilize a price for a product or service. It may involve setting a minimum price, setting a maximum discount on price, agreeing to buy supplies at an "agreed upon" maximum price, agreeing to a standard set of charges or surcharges for a product or service, or even agreeing to a set rate of production of a product. In any case, it involves an agreement that disrupts open market price competition.
Legally, price fixing may involve sharing price information with competitors with the intent to set prices. According to the United States Department of Justice, price fixing does not necessarily involve setting the exact same price for a product or service, nor does it require the participation of every business in an industry.
Why it Matters:
Price fixing works against open, competitive markets that allow prices to reach equilibrium between supply and demand. This disruption can be harmful to consumers, resulting in higher prices. In the long-term, economists believe that price fixing is harmful to producers because it masks an industry's real production and service costs, resulting in inefficient and unproductive industry.
Generally, price fixing is considered illegal, often found in monopolies, cartels, bid-rigging, bid suppression, complementary bidding, and bid rotation schemes. In the US, price fixing is considered a criminal felony under the Sherman Antitrust Act.