Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Price Rigging

What it is:

Also known as collusion or price fixing, price rigging occurs when a group of people or businesses agree to set the price for something. 

How it works (Example):

In the stock market, traders with inside information might conspire to work together on trades in order to benefit from the inside information. Likewise, sellers might inflate the price of an asset to realize more profits.

For example, let’s assume that there are four major telecommunications providers in the United States and they all agree not to compete with one another for customers in certain geographic areas of the country. To accomplish this, the group agrees on which of the four providers will "get" each territory by offering the best price or service in that territory. The other three agree not to undercut that provider in that territory. In return, the providers ensured that no other competitors will enter the markets, thereby preserving their profits and territories as a whole.

Why it Matters:

Price rigging is illegal because it interferes with the natural market forces of supply and demand and harms consumers by inhibiting competition.