Price-Fixing Laws: Who Faces Legal Consequences?

Price fixing is an agreement between competitors to raise, lower, or stabilize prices for services or products. It can occur in both written and verbal form, and can also be inferred from conduct. Price fixing is generally illegal under antitrust laws, particularly Section 1 of the Sherman Act, and can result in felony charges and civil liability for damages. The laws apply to both individuals and companies, and investigations are routinely carried out by the FBI and other federal law enforcement agencies. While price fixing is mostly illegal, it is allowed in some markets and is known as resale price maintenance or retail price maintenance.

Price fixing between business competitors

Price fixing is an agreement between competitors to buy or sell a product, service, or commodity at a fixed price, or to maintain market conditions such that the price is maintained at a given level by controlling supply and demand. It is an anticompetitive practice that can take the form of written, verbal, or inferred agreements. The defining characteristic of price fixing is any agreement regarding price, whether expressed or implied.

Price fixing is illegal in most cases under antitrust laws, particularly Section 1 of the Sherman Act, as it undermines the free market principles that competitors should freely compete in the marketplace and individually fix their prices based on market forces such as supply and demand. When competitors form a price-fixing agreement, it can prevent the proper functioning of market-based pricing, leading to higher costs for consumers and reduced competition.

Price-fixing agreements can be horizontal or vertical in nature. Horizontal price fixing involves direct competitors agreeing to raise, lower, or stabilize prices, creating a cartel agreement. For example, two competing fast-food chains agreeing on the retail price of cheeseburgers would be engaging in horizontal price fixing. Vertical price fixing, on the other hand, involves members of a supply chain agreeing to manipulate prices. An example would be manufacturers forcing retailers to sell a product at a predetermined retail price or follow "suggested" retail price policies that do not allow for discounts.

While price fixing is generally illegal, there are some limited exceptions. For instance, price fixing may be permitted for entities like joint ventures, and certain industries or markets may have exemptions, such as the magazine and newspaper distribution industry, and sometimes the motion picture industry. Additionally, when the agreement to control prices is sanctioned by a multilateral treaty or entered into by sovereign nations, cartels may be protected from lawsuits and criminal antitrust prosecution. An example is OPEC, the global petroleum cartel, which has not been prosecuted under US antitrust law.

Price fixing between manufacturers, wholesalers, and retailers

Price fixing is an anticompetitive agreement between participants in a market to sell a product or service at a fixed price. It is a conspiracy between sellers to coordinate pricing for their mutual benefit. Price fixing is illegal in most cases under antitrust laws, as it undermines market pricing and can lead to higher costs for consumers and less competition.

Price fixing laws apply to manufacturers, wholesalers, and retailers, and it occurs when these entities form an agreement (written, oral, or inferred from conduct) to raise, lower, or stabilize prices. For example, manufacturers of a product may force retailers to sell at a predetermined retail price or require them to follow "suggested" retail price policies that do not allow for discounts to customers. This type of vertical price fixing is illegal under antitrust laws.

In the supply chain, wholesalers are the link between manufacturers and retailers. They buy products in bulk from manufacturers and then sell them to retailers, who, in turn, sell to consumers. The wholesale price is usually set at a level that allows wholesalers to earn a profit by selling goods at a higher price than they paid to the manufacturer. Retailers then charge consumers an even higher price for the product, known as the retail price.

While wholesale and retail prices are typically different, price fixing can occur when wholesalers and retailers agree to sell at a common retail price or set a common minimum sales price. This type of agreement between wholesalers and retailers is illegal, as it disrupts the proper functioning of market-based pricing and harms consumers.

It is important to note that not all similar prices or simultaneous price changes are indicative of price fixing. Often, these situations arise due to normal market conditions, such as changes in supply and demand or the nature of the product. For example, the prices of agricultural products like wheat tend to be similar because they are essentially the same, and their prices will rise or fall together due to factors like natural disasters or changes in consumer demand.

To summarize, price fixing laws apply to manufacturers, wholesalers, and retailers, and it is illegal for these entities to collude to fix prices. While wholesale and retail prices are typically different, price fixing occurs when wholesalers and retailers agree to sell at a common price or restrict pricing in a way that harms competition and consumers.

Civil liability for damages resulting from price fixing

Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand. It can occur both vertically and horizontally. Vertical price fixing involves members of a supply chain agreeing to raise, lower, or stabilize prices. For example, manufacturers may force retailers to sell products at a predetermined retail price. Horizontal price fixing involves direct competitors agreeing to raise, lower, or stabilize prices, creating a cartel agreement.

Price fixing is generally illegal under antitrust laws, specifically Section 1 of the Sherman Act, which condemns any contracts, combinations, and conspiracies in restraint of trade. However, price fixing can be permitted in some markets and for some entities, such as joint ventures and government-operated businesses.

Price fixing can lead to civil liability for damages resulting from the wrongful manipulation of prices or supply. Civil liability refers to the legal responsibility of an individual or entity to compensate another for damages caused by their actions or negligence. In the context of price fixing, civil liability allows those harmed by the practice to seek monetary compensation for the negative consequences they have suffered.

To establish civil liability and receive compensation for damages resulting from price fixing, several elements must be proven:

• Fault: It must be proven that the accused individual or entity committed a fault, such as engaging in price-fixing activities that caused harm to the claimant.
• Causation: A direct causal link must be established between the accused's actions and the harm suffered by the claimant.
• Damages: The claimant must have suffered negative consequences or damages as a result of the price fixing. These damages can include economic losses, such as higher prices or reduced supply, as well as non-economic losses, such as pain and suffering.
• Quantification of Damages: The value of the damages suffered must be proven and quantified. This can include tangible losses, such as increased costs, as well as intangible losses, such as loss of friendships or changes in physical appearance.

Once civil liability is established, compensation for damages can be awarded. The purpose of this compensation is to make the claimant whole by covering the negative consequences they have suffered, rather than to enrich them. The compensation can include compensatory damages, incidental damages, and, in some cases, punitive damages to deter future wrongdoing.

International price fixing

In the United States, price fixing can be prosecuted as a criminal federal offense under Section 1 of the Sherman Antitrust Act. The Federal Trade Commission (FTC) also has authority under 15 U.S.C. § 45 to prevent “unfair competition,” including actions beyond price fixing.

In Canada, price fixing is an indictable criminal offence under Section 45 of the Competition Act. Bid rigging is considered a form of price fixing and is illegal in Canada (s.47 Competition Act).

Price fixing is illegal in Australia under the Competition and Consumer Act 2010, with prohibitions similar to those in the US and Canada. Section 48 of the Act explicitly states, "A corporation shall not engage in the practice of resale price maintenance."

New Zealand law prohibits price fixing, among most other anti-competitive behaviours, under the Commerce Act 1986. The Act covers practices similar to those in US and Canadian law, and it is enforced by the Commerce Commission.

Under the EU commission's leniency programme, whistleblowing firms that cooperate with the antitrust authority may have their prospective penalties reduced or wiped out.

British competition law prohibits almost any attempt to fix prices. An example of this is the Net Book Agreement, a public agreement between UK booksellers from 1900 to 1991 to sell new books only at the recommended retail price to protect smaller bookshops.

International airline tickets have their prices fixed by agreement with the IATA, a practice for which there is a specific exemption in antitrust law.

Price fixing in joint ventures

Price-fixing agreements are generally illegal under antitrust laws. However, there are some limited circumstances where price fixing is allowed, such as in joint ventures.

In the United States, the Supreme Court case of Texaco v. Dagher ruled that a joint venture between two large oil companies, Texaco and Shell, to sell oil at a single price was not "per se" illegal. The Court held that since Texaco and Shell did not compete directly in the market but participated jointly through their investment in the joint venture, their pricing policy was not price fixing in the antitrust sense. This case gives joint ventures the confidence to price their products in the same manner as a single firm.

Similarly, in South Africa, the Supreme Court of Appeal (SCA) in American Natural Soda Ash Corporation and Another v Competition Commission of SA and Others stated that price fixing does not necessarily occur just because competitors' goods reach the market at a uniform price. The SCA referred the matter back to the Tribunal to determine the scope of the prohibitions in the Competition Act and the extent to which evidence regarding the nature, purpose, and effect of a joint venture should be considered in determining whether conduct is per se prohibited.

It is important to note that while joint ventures may have some leeway in pricing, they must still comply with antitrust laws. The US Supreme Court's decision in Texaco v. Dagher did not provide a blanket exemption for joint ventures from antitrust scrutiny. Instead, it clarified that the rule of reason analysis, which considers the competitive impact of the challenged practice, applies to the pricing conduct of "a lawful, economically integrated joint venture."

In summary, while price fixing is generally illegal, joint ventures may have more flexibility in pricing their products as long as they do not directly compete in the market and their conduct enhances competition. However, joint ventures created solely for the purpose of price fixing, market division, or collusive tendering are still considered per se violations of competition law.

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