Price fixing

Definition
Price fixing is a practice where by market participants on the same side of the market agree to set a specific price for goods so as to prevent competition. This can lead to artificially inflated prices, or prices that are too low for other producers to compete. Price fixing is a form of monopoly control and is illegal under section 1 of the Sherman anti trust act.

Types of Price Fixing
There are two types of price fixing and each has two subdivisions. There is Horizontal and Vertical price fixing, and each can be divided into minimum and maximum price fixing.

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Horizontal
Horizontal price fixing involves the collusive price setting and/or stabilization of market prices by competitors within that market. Horizontal price fixing is always illegal.

Vertical
Vertical price fixing exists when a manufacturer imposes specific resale prices on its distributors. While vertical minimum price fixing is per se illegal, vertical maximum price fixing is tested under a rule of reason to determine if there are any anticompetitive consequences. If non are found then this type of price fixing may be acceptable.

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Vertical minimum price fixing is generally targeted at other competitors in an attempt to undercut their ability to sell their goods. Horizontal price fixing is traditionally aimed at the consumer and is designed to artificially inflate the price of a single good so that consumers have no alternative but to purchase the product at the increased price.

Application
Section 1 of the Sherman anti trust act applies to contracts or collusion between multiple parties. It "does not prohibit an individual business, acting alone, from unilaterally setting its own prices, even if the prices are artificially high or artificially low."