how does price fixing work, can’t anyone charge whatever they want for a product?
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As an individual business, you are free to charge whatever you want. If you charge a price that is too high, then you won’t get any customers but if you charge a price that is too low, then you won’t make any money. The tension between these two requirements is called “competitive tension” and it keeps prices reasonable in a market where there are many providers of the product, and the providers are kept honest.
Price fixing refers to when you get together with other businesses selling the same product as you are and collectively decide on what the price should be. This price will of course be higher than what the companies would other wise choose (termed “artificially high”). This mostly happens when there are just a few companies that provide that product, since price fixing only really works if all (or most) providers are in on it (and it would be tricky to agree together between lots of different providers).
If all the companies that provide the product have agreed on the price, then customers wont have an option to take their business elsewhere if they don’t like the price. The customer’s only choice then is whether or not to buy the product at all. This is a major problem in markets for products which are necessities, because customers don’t have the option of not buying the product. This is when governments should get involved and make it illegal for companies to discuss and agree on the price they’re charging.
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