Sherman Act - Horizontal Price Fixing
When Competitors Agree on a Price for a Product or Service
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When is establishing a fixed price for a product or service among competitors illegal?
Under the Sherman Act 1, an agreement among competitors to establish a fixed price among all producers or sellers of goods or services is a horizontal restraint of trade. This type of naked restraint on trade is a purely anticompetitive and is per se illegal. Businesses may develop all sorts of arrangements to control the ultimate price of a good or service. It does not matter if the fixed prices are fair or reasonable. The anticompetitive aspects of agreeing on a price detriments consumers. This is true even when small competitors agree not to compete in an attempt to remain competitive in a market with larger competitors. (Note: The purpose of increasing the number of competitors in the market does not justify the restraint on trade and the detriment to consumers.) Further, an agreement among competitors to undertake efforts to stabilize a price that otherwise fluctuates is per se anticompetitive.
Note: Conscious Parallelism is the practice of competitors following pricing practices without an express agreement. If no collusion occurs, this practice is legal. Another exception to the prohibition against price fixing is when competitors enter into joint ventures for a specific purpose and establish a single price for similar goods. While these types of agreements could still be the subject of challenge, they may not be per se illegal.
Example: Robs Widgets, LLC and Hanks Widgets LLC both sell the same type of product. They are smaller suppliers in an otherwise large market. They both want to grow their market share, so they agree to charge the same price for their widgets in all circumstances. This is price fixing and is per se illegal.
Next Article: Sherman Act - Vertical Price Fixing & Maintenance Back to: ANTITRUST LAW
Discussion: Do you support the rule that agreements among competitors should be considered per se illegal? Can you think of any pro-competitive justifications for competitors agreeing to set a price?
Practice Question: ABC Corp sells similar goods to 123 Corp. ABC and 123 enter into an agreement to price their goods equally. ABC also agrees to match the low price from any local competitor. Are either of these arrangements illegal?