Price-fixing is an illegal activity under both federal and state antitrust laws. Price fixing occurs when a vendor conspires with a competitor to set the price for a product or service and maintain it within a specific market. Companies do this to protect profit margins. In this way, businesses avoid losing sales to a competitor who might sell a product at a lower price. Companies may agree to fix prices in writing or orally. Or, a price-fixing agreement can be inferred from their conduct.
Price-fixing can also take the form of competing companies agreeing on discounts, or the amount of a good or service to produce, instead of allowing market forces to determine prices, discounting and production.
Price fixing does not allow the law of supply and demand to operate as it should for the benefit of our economy. It serves the interests of businesses at the expense of consumers. Price-fixing results in higher prices for customers who buy products and services. Economists also assert that it reduces incentives for companies to innovate, for example, by figuring out ways to produce a product less expensively. It also raises barriers that keep new companies from entering a market.
Price-fixing in the U.S. is illegal under the federal Sherman Antitrust Act (SAA) and the Clayton Act. Under these laws, anti-competitive agreements among businesses and the formation of monopolies are illegal. The Sherman Antitrust Act authorizes the Department of Justice to file lawsuits in order to put a stop to anti-competitive practices that are illegal under the SAA. It also gives individuals the right to sue violators and possibly recover up to three times the amount of their actual damages.
In addition, the SAA makes anti-competitive practices punishable as crimes. For example, bid rigging is a federal felony that may be punished by fines, imprisonment, or both. Anti-competitive practices may also be crimes punishable by fines and imprisonment under state antitrust laws.
In part, the SAA makes contracts, combinations, and conspiracies in restraint of trade illegal. Illegal acts under the SAA include vertical and horizontal schemes. Horizontal price fixing takes place when competitors agree to raise, lower or stabilize prices for a good or service that they all distribute.
For example, when two competing ice cream retailers that sell ice cream cones agree on the retail price of ice cream cones, it amounts to a horizontal agreement that is illegal under antitrust laws. Vertical price fixing happens when businesses in a single supply chain agree to raise, lower or stabilize prices.
An example of vertical price fixing is multiple manufacturers of a product together forcing retailers to sell the product at a predetermined retail price or requiring their retailers to follow “suggested” retail price policies that do not permit discounts to customers. Agreements such as these are also illegal under antitrust laws.
State antitrust statutes are generally enforced in two ways:
- A state’s attorney general may sue on behalf of the state in order to end the unfair practice. This is achieved by obtaining an injunction that orders the businesses engaged in the practice to stop. Or a lawsuit might punish the unfair practice by ordering the payment of fines to the state. Or, a judgment might order the payment of damages to the consumers or others who were harmed financially by the unfair practice; or
- A private right of action, where competing businesses or consumers themselves sue to recover damages for injuries suffered as a result of the unfair practice.
Some examples of state antitrust laws are as follows:
- Texas Antitrust Law: The state of Texas regulates business practices through the Texas Fair Enterprise & Antitrust Act of 1983. The act is enforced by the state Attorney General who investigates and prosecutes violations, such as: price-fixing, bid-rigging, monopolies, cartels, group boycotts, and anti-competitive mergers and acquisitions. Private parties can also bring a lawsuit against a business that violates the Act;
- New York Antitrust Law: New York’s antitrust laws are found in the state’s Donnelly Act. It allows private lawsuits against defendant businesses, as long as claims are brought within four years. No administrative action has to be filed before a lawsuit can be initiated, but private plaintiffs must notify the New York attorney general of their intention to file suit. The 4-year statute of limitations can be suspended while a federal action based on the same situation is pending in federal court. Attorney’s fees can be recovered by a plaintiff who is successful with their suit. The Donnelly Act prohibits the following:
- Price Fixing: Again, this is an agreement between competing businesses to buy or sell goods or services at a fixed price or rate;
- Bid Rigging: In bid rigging schemes, competitors for bids may agree to divide contract bids amongst themselves, throwing one project to one competitor and another project to another competitor, rather than competing fairly and honestly for projects;
- Market Division Schemes: These are agreements between competitors to divide markets, products, customers or territories amongst themselves rather than competing openly in all markets;
- Group Boycotting: In a group boycott, several competitors get together and agree to boycott a firm unless the firm agrees to cease doing business with an actual or potential competitor of the firms conducting the boycott;
- Tying: Tying involves selling a product or service only on the condition that the buyer agree to also buy a different product or service from the same business;
- California Antitrust Law: California antitrust law is contained in the Cartwright Act. It empowers either the state attorney general or a private party to file suit against a business that engages in anti-competitive practices. There is a 4-year statute of limitations, and a successful plaintiff may recover their attorney’s fees.
