Most private and public businesses rely on competition to achieve their sales goals. When managed properly, competition ensures that customers receive the best products for the best price. When companies work together and adjust their prices for the sole purpose of over-inflation, the customers are placed in a vulnerable position. The act of price fixing is both illegal and unethical, and leads to unfair pricing for consumers.
In 1980, the Sherman Act was instated to protect both businesses and consumers. This economic legislation ensures fair pricing while still allowing for open competition through the restriction of price fixing. Price fixing is defined as “an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold” (Price Fixing, Bid Rigging, and Market Allocation Schemes 2). Some examples of price fixing include the holding of prices, eliminating discounts, adopting a standard formula for computing prices, and not advertising prices.
Price fixing can also be used to discriminate against other small businesses. Setting a price only within a certain area in order to eliminate competition or create a monopoly is illegal. Many states have also adopted a “Below Sales Cost” law. This law states that they may not sell goods below their cost with an anti-competitive intent. Price fixing is harmful to individuals, small businesses, and corporations (Price Fixing: What is it? 2).
I agree with the current laws that are in effect against price fixing. If price fixing were allowed to take place in the marketplace, there would be a dramatic rise in prices in various products. Gas stations would collaborate, causing the price per gallon to rise overnight. If the local market was flooded with price fixing in products such as gas and food, there would be no choice but to purchase products at an inflated price. If large companies sold products at a price lower than cost, smaller family owned businesses would fail within weeks. Thanks to the Sherman Act, there is still fair competition in the marketplace, but it is not so fierce that newly developing businesses crumble under the pressure.
The Sherman Act is strictly enforced today under the Federal Antitrust Enforcement Department. In 2000, a settlement was made with three of the United States' largest music retailers. These retailers followed a practice known as “minimum-advertised pricing” (or MAP). Through MAP, these retailers subsidized ads by retailers. In return for this, the stores agreed to sell CD's at or above a certain price, providing them with an unfair advantage over consumers. The companies agreed to pay $67.4 million and distribute $75.7 million in CD's to public and non-profit groups to settle the lawsuit (USAToday.com 2).
Ensuring fair competition is essential to maintaining low prices in the marketplace. Although competition itself is not unethical, it is unethical when companies work together to intentionally and unnecessarily increase profits at the expense of the consumer. Without the Sherman Act, prices would skyrocket in every industry. Thanks to the Sherman Act, we can be sure that we are being charged fair prices in our local market.
