Table of Contents
In this article, you will learn about what price fixing is, the different types of it, and real world examples where crony capitalists have stolen from the average American.
Read on to discover how you can best fight for an ethical economy with the Zero Theft Movement.
What is Price Fixing?
DEFINITION
Price fixing is an agreement between two businesses (the government notwithstanding) to set the price of a product or service, rather than leaving it to be established through free-market forces.
Before anything else, it’s important to realize that NOT all price fixing is illegal and harmful to the public.
Price fixing laws, for one, do not apply to the government.
This can benefit the citizens, for example, when lawmakers establish a price floor for minimum wages.
…Or it can hurt us, as in the case of Franklin D. Roosevelt’s failed attempt to lift the nation out of the Great Depression. In short, he signed laws forcing all businesses to charge above-market prices (a.k.a. ‘price gouging’).
However, price fixing laws undoubtedly apply to businesses. The U.S. government instituted antitrust laws in order to preserve industry competition, which should help keep prices low for the public. One major problem, of course, is companies still find legal channels like lobbying to gain a pass for their price fixing efforts.
Consider the skyrocketing prices of insulin, for one.
So, let’s dive deeper into the different types of price fixing (legal and illegal), and how crony capitalists use it to rig the economy against us.
Types of Price Fixing
To repeat once more, businesses fix prices by teaming up with at least one of its competitors to sell a good or service at an agreed price. Obviously maximizing profits, albeit unethically, serves as the main reason why businesses price fix.
You will find it happens in two main ways: horizontal and vertical price fixing.
Horizontal Price Fixing
Horizontal price fixing involves businesses opting to either set either premium or discounted prices.
In the case of premium prices, colluding companies will fix sale prices, so they don’t undermine one another.
To illustrate, let’s say your local bakeries agree to set a premium on croissants. In your opinion, there isn’t enough difference between each bakery’s croissant to have an influence on your decision making. Wherever you go, you can’t find your favorite bread at the old price. The bakeries will, then, profit by simply competing at an agreed premium price. Your wallet would suffer due to horizontal price fixing, in this case.
Discounting prices between competitors might seem counterintuitive at first blush, but it works because it drives sales. Businesses agree to set a lower price to encourage sales, undercutting those who aren’t ‘in’ on the price fix. To reuse the croissant example, let’s say a few of the bakeries agree to suddenly lower their prices. You will repeatedly return to those bakeries that offer croissants at that reduced price.
Vertical Price Fixing
Vertical price fixing happens in supply chains involving manufacturers, wholesalers, and retailers.
Manufacturers, for example, can collectively decide to not deal with retailers who will offer their products at a discount. In this instance, setting a price floor has been illegal since 1911, and is known as ‘resale price maintenance.’
Businesses can legally bypass vertical price fixing laws by taking full control of as much of the supply chain as possible. This is called vertical integration. You make and sell your products, without involving outside parties in the process. Vertical integration, therefore, allows businesses to freely and legally set their prices.
McDonald’s is probably one of the best known operations that are vertically integrated.
Examples of Price Fixing
Price fixing is happening in many industries, behind the scenes. We have found some instances where price fixing allegedly happened. It’s important to realize here that settling does not equate to an admission of guilt. Take a look at our short summaries and/or dive deeper by following the news reports we’ve linked.
Got too much milk?
Perhaps surprisingly, a dairy industry group (Cooperatives Working Together) settled a $52 million class action lawsuit for price fixing in 2017. NPR reported on the case, documenting how Cooperatives Working Together bought cows from farmers to allegedly reduce milk supplies and raise prices. Cooperatives Working Together used their ‘herd buyout program’ to then produce beef. The dairy industry’s counter argument was that farmers should not have to keep dairy cows (known to produce less milk. as they age).
Canned tuna control
In 2015, the government opened up an investigation into the canned tuna industry. Allegedly the three major players (Starkist, BumbleBee and Chicken of the Sea) not only held 80% of the U.S. market but also colluded to fix prices to maximize all of their profits. NPR, again, has a report on the canned tuna proceedings.
Banks and bond prices
According to an article on CFO, institutional investors won a settlement against banks rigging Fannie Mae and Freddie Mac bonds. The author of the article writes, “Investors cited online chatroom messages in which traders representing the defendant banks agreed on artificial prices before bringing the bonds to market.”
Amazon, Apple, and the FTC
The Verge, in 2019, released a report focusing on the FTC’s investigation into the Amazon and Apple deal. Apple, while they used to be completely vertically integrated, opted to officially sell through Amazon to eliminate counterfeits. Consequently, vendors selling genuine, though refurbished and low-cost, Apple products through Amazon have been kicked off the platform. The investigation, as of July 2020, is still ongoing.
Why can Price Fixing be Theft?
Price fixing can be theft as it breaks our (relatively) free market, allowing businesses to unethically maximize profits they extract from the public. Fair competition, as much as such a thing is achievable, is a cornerstone of capitalism, and price fixing clearly violates the regulations we have in place.
Whether it’s through premium or discount price fixing, business outside of the ‘in-group’ cannot compete. Either way they’re earning less profits by doing things the right way. We need to preserve competition to not only make sure we get the best goods at the best prices but also that businesses get a fair shake at achieving success.
So, how can we counteract price fixing?
- Seek out and purchase lower-priced options
- Decrease consumption to force businesses to reduce prices
- Source the product from overseas
However, such options are not always available. Unlike your favorite tech product or canned tuna, price fixing has reared its ugly head in truly significant matters, matters of life and death.
If you’re familiar with Medicare Part D, for example, then you know that big pharma has managed, through lobbying, to eliminate most (and sometimes all) of those options we have to counteract price fixing. Most likely, some of you have experienced what it’s like to be unable to afford the medicine you need to live (e.g. insulin). Crony capitalists have gotten congress to sell out, in effect preventing you, by law, to source the product from overseas. Plus ‘pay for delay‘ deals, for example, are just one method big pharma uses to break free markets by ensuring generic versions of their drug do not get released.
Not only do you not have options to purchase lower-priced options. You cannot decrease your consumption because, without it, you would not be able to live. If anything, theft is too forgiving a term in this case.
Do you think Price Fixing is Theft?
ZTM wants to prevent corporations from price fixing but we need your help.
Fight for what you deserve by joining ZTM, spreading the word, and speaking out against lawmakers who have sold out.
Zero Theft will cut out the layer of crony capitalism, so we can benefit from a truly free market.
Standard Disclaimer
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.