What Is Fixing?

What Is Fixing?

Let me explain fixing to you directly: it's the practice of setting a product's price instead of letting free-market forces decide it. When this involves collusion among producers or suppliers, it's illegal.

While we usually talk about price-fixing, the term can extend to other areas, like fixing the supply of a product to keep prices high or push them up.

Key Takeaways

Here's what you need to grasp: fixing means setting prices outside of market dynamics. It's illegal when two or more producers collude to keep prices artificially high or suppress what they pay suppliers. The FTC defines illegal price-fixing as any agreement—written, verbal, or inferred—that raises, lowers, or stabilizes prices or terms. That said, some forms, like currency pegs, are perfectly legal.

Understanding Fixing

In a free market, prices come from supply and demand. If something costs too much, producers flood in but buyers back off; if it's too cheap, production drops while demand surges. Eventually, it balances at a fair value—that's economics 101.

Classic price-fixing forces consumers to overpay through secret agreements among competitors to hold prices steady and avoid undercutting each other. Another version is when competitors agree to cap what they pay for inputs, like hospital groups limiting medical supply costs—that's also price-fixing.

In the U.S., this is against the law. The FTC calls it any competitor agreement that messes with prices or terms, and it's prosecuted under antitrust rules.

Price-Fixing and Antitrust Laws

Antitrust laws, including the Sherman Act, ban these collusions to protect competition and consumers. The DOJ and FTC enforce them by investigating anticompetitive acts.

If you're caught, expect heavy fines, jail time, and reputational hits. Leniency programs help: the first to report and cooperate might get immunity or lighter penalties, encouraging accountability and breaking up schemes.

Important Note

Remember, not every case of price-fixing is illegal—context matters.

Price-Fixing and Economic Equilibrium

Price fixing throws off the natural balance of supply and demand, where equilibrium happens when quantities match at a market price. By artificially setting prices, it creates mismatches and distorts true value.

Economically, it kills market efficiency. Without real competition, resources aren't allocated properly, and companies lose motivation to innovate or cut costs.

Price-Fixing and Small Businesses

Small businesses get hit hard by price fixing—they lack the clout to fight back against manipulated prices. When big players fix prices below cost for smaller ones, those giants can still profit thanks to scale, but it crushes the little guys.

Startups face even tougher odds: fixed prices stifle their growth, block innovation, and deter new entries. Some might not bother launching products if competing against fixed rates is impossible.

Horizontal Price-Fixing vs. Vertical Price-Fixing

Horizontal price fixing happens among peers in the supply chain, like rival manufacturers agreeing to inflate prices, limit output, or divide customers.

Vertical price fixing is between different levels, such as a manufacturer dictating resale prices to retailers through minimums or other controls.

Fast Fact

Price-fixing isn't always bad for consumers—regulations can prevent price gouging on essentials like medications, making them more affordable.

Reasonable Cases of Price-Fixing

Sometimes, fixed prices make sense. Governments might oversee utilities to ensure stable, affordable access where competition isn't feasible. Companies in the same group can collaborate internally on pricing without restricting outside competition—that's legal.

Professional associations in fields like law or healthcare might set fee guidelines for fair pay, but they're watched to avoid antitrust issues. Governments use price floors for agriculture to shield farmers from volatility and support economies.

To counter predatory pricing, regulators might enforce minimums to protect markets. Customized deals with customers are fine if they don't discriminate or harm competition. Each case depends on specifics, and some might cross into illegality.

Examples of Price-Fixing

Take the 1970s OAPEC oil embargo: members cut supply, causing shortages and quadrupling prices worldwide.

In 1999, Roche paid a record $500 million fine for vitamin price-fixing; BASF was fined too, but a French firm got leniency for cooperating.

Currency pegs, like some nations tying to the U.S. dollar, are legal fixes that aid trade and stability.

Are There Any Legal Exceptions to Price-Fixing Rules?

Yes, but they're limited—like government controls in regulated industries. Avoid anticompetitive pricing in general.

How Do Authorities Detect and Investigate Price-Fixing Schemes?

They use whistleblowers, market monitoring, data analysis, and even internal tips with no penalties to uncover and probe these schemes.

Can Collaborations Within the Same Corporate Group Involve Price-Fixing?

Internal pricing agreements in a corporate group are usually legal, as long as they don't damage external competition.

Are There Instances Where Governments Legally Fix Prices?

Governments fix prices in areas like utilities to control industries and discourage private entry, all under strict oversight to protect consumers.

The Bottom Line

Price fixing is when competitors agree on prices, killing fair competition—it's illegal under antitrust laws and brings serious penalties.