Price fixing occurs when competitors reach an agreement (written, oral, or inferred from conduct) with the purpose and effect of raising, lowering, or stabilizing prices for services or products. Competitors should freely compete in the marketplace and individually fix their prices based on the market forces (supply and demand). Free competition benefits consumers because it should lead to lower prices. When competitors reach an agreement, this type of agreement in restraint of trade is illegal under antitrust laws provided it may lead to higher prices or elimination of competitors, therefore harming consumers.
Section 1 of the Sherman Act condemns any contracts, combinations, and conspiracies in restraint of trade, which includes vertical and horizontal price-fixing schemes. Horizontal price fixing involves competitors that agree to raise, lower or stabilize prices. For example, when two competing fast-food chains that sell hamburgers agree on the retail price of cheeseburgers, that horizontal agreement is illegal under antitrust laws. Vertical price fixing involves members of the supply chain that agree to raise, lower or stabilize prices. For example, when manufacturers of a product force the retailers to sell the product at a predetermined retail price or require their retailers to follow “suggested” retail price policies that do not allow discounts to customers. These types of agreements are also illegal under antitrust laws.
[Last updated in July of 2021 by the Wex Definitions Team]