how does price fixing work, can’t anyone charge whatever they want for a product?
In: 82
To make it really ELI5:
Two companies make and sell donuts.
One company makes the donut for 5 dollars, and sells them for 10.
The other company makes them for 8 dollars but since the first company sells their donuts for 10, the second company can’t charge more because people will just buy donuts from the first company cheaper.
So in order to make more money the second and first companies meet and discuss, they decide to both up the price of donuts to 15 dollars each so no matter which company the customers go to, they’ll both earn more money per donut sold and they don’t risk losing customers to the other company.
The reason this is illegal is because the market is meant to have businesses compete for customers so that instead of higher prices, in my example, the first company could go down to selling donuts for 7 dollars each and still make some profit, and the second company just wouldn’t be able to stay in business because it costs them more just to make the donut than the first company is selling theirs for.
This model applied to a whole market usually means that quality suffers a bit from cut corners, but the customers end up with the cheapest possible products and the businesses who fail are meant to fail so that us consumers can get more for the money we earn.
There is a LOT more complexity to price fixing, profit, and production, but this example shows you clearly how price fixing hurts the consumer a lot. So it is consumer protection that is the basis of anti-pricefixing laws.
Latest Answers