Every business has one goal in mind: to make more profit. As such, when demand, prices and, ultimately, their profit crashes, businesses are threatened to fail. Their solution? Price fixing.
Price fixing is when 2 or more companies privately call or meet to control the market’s supply and demand. They do this by collectively lowering or raising their prices, in which the consumer has no choice but to buy the product at said price. This harms the economy as there is less incentive for competition to join. Due to the lack of competition and the large profits, there is no reason for them to innovate to improve a product.
There are 4 types of price fixing such as agreement to raise prices, freezing or lowering prices, horizontal price fixing and vertical price fixing. Firstly, an agreement to raise prices is when 2 or more competitors collectively decide to raise a certain price on a certain product by a certain amount. Secondly, freezing prices is done by the government but is mostly used as a fallback when other monetary policies fail. Thirdly, horizontal price fixing is when 2 or more competitors of the same product decide to raise prices. Finally, vertical price fixing is when anyone along the supply chain (manufacturer, retailer, wholesaler, etc) decides to fix prices.
It is extremely difficult to tell when a company’s fixing a price as they don’t leave traces of their plan. On top of this, it’s extremely difficult since it looks just like normal business competition. Prices will always fluctuate as a result of supply and demand and companies will often raise or lower prices at the same time. Price fixers are most often caught if authorities are given information.
One of the biggest price fixing schemes in Canada is the 14-year bread scheme. From November 1st 2001 to December 31 2021, companies such as Loblaws, Metro and Walmart have collectively raised the price on bread products, causing consumers to lose hundreds of dollars over bread. These companies have apologized and issued compensation under the form of free groceries and gift cards.
_________________________________________________________________________________
Sources & References:
________________________________________________________________________________
For any and all inquiries, please fill out our contact form on our website, or send us an email at theglobalbusinessscholars@gmail.com
Our executive team will be in touch shortly.
Comments