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The illegality of price fixing agreements

On Behalf of | Sep 3, 2017 | Business Litigation

Price fixing agreements are generally illegal as violating anti-trust laws in Texas and elsewhere in the United States. These illegal arrangements occur when two or more companies collude to increase or decrease product prices to bring about a particular effect. It can also occur by manipulating prices to be unnaturally stable when they should otherwise fluctuate because of other influences.

Another form of this illegal practice is to agree with a competitor on what competitive terms will be allowed to the consumers of the product or service both companies sell. The law directs that each company design its own prices and contract terms based on supply and demand, not based on an accord between competitors. For example if two companies agree to limit the amount of supply they will sell, higher prices for the resulting more limited supply to consumers will result. This price fixing is a major government concern and violation of law.

Circumstantial evidence leads to price fixing inquiries

Despite the laws against price fixing, it still occurs, usually in secret. Because evidence can be scarce, authorities need circumstantial evidence to discover and prove such a scheme. Such evidence may involve the following:

  • Competitors have an identical set of contract terms
  • Competitors have prices and price movements that mirror each other
  • Normal market conditions do not explain the similarities of the competitors

Examples of other contract terms that can lead to price fixing include the following:

  • Financing rates
  • Warranties
  • Shipping fees
  • Discount programs

There mere discussion among competitors of the above topics can lead to concerns about price fixing.

Market conditions can explain identical prices

An example of market conditions that can explain apparent identical price fluctuations, for instance, is a drought that lowers the supply of wheat, thereby raising the price of bread. Similarly, a sudden increase in customer demand for kale due to a strong news article about the healthy effects of the green could cause the price to rise without any competitor collusion.

The Texas Attorney General has the authority to investigate allegations of price fixing in Texas under the Texas Free Enterprise and Antitrust Act. The AG may also prosecute under federal antitrust statutes. The state AG does not represent individuals but at times may pursue a settlement with the offender that provides restitution to individual victims.