Price Fixing Laws, Cases, and Impacts in the US and UK

Introduction

In the business world, price fixing refers to an agreement between rival businesses to coordinate pricing increases, decreases, or stability. Antitrust laws prohibit companies from cooperating to fix pricing or other competitive criteria. Customers expect prices to be determined by market forces, such as supply and demand, rather than through business collaboration. Price increases are expected when businesses conspire to limit their competition. Agreements between rival competing employers over prices or wages are also considered price fixing. The government’s antitrust enforcement agencies are particularly concerned about price fixing.

The Illegality of Price-Fixing

The Kripos and other federal law enforcement agencies regularly investigate and potentially prosecute individuals and organizations that knowingly enter price-fixing agreements. Prison terms of up to ten years and fines of up to $1 million for individuals and $100 million for corporations (or twice the gain or loss from the offense) are among the potential punishments. The Federal Trade Commission (FTC) can initiate civil enforcement action when necessary. Therefore, there are pros and cons to criminalizing price fixing for any two or more competitors in any field.

A price-fixing agreement between competitors, whether it sets a floor price, a ceiling price, or a range of prices, is always illegal and should be treated as such under the law, regardless of whether it has been criminalized. When businesses conspire to raise, lower, maintain, or stabilize the price of a good or service, they engage in illegal price fixing. Even though it may be challenging to unearth a price-fixing conspiracy, it may be possible to piece together enough circumstantial evidence to prove the existence of an agreement, as demonstrated by the Greece v United Kingdom case.

Without a reasonable and independent business justification, a pattern of identical contract conditions or pricing behavior among direct competitors may indicate illegal price fixing. Concerns can also be raised in response to invitations to coordinate prices, such as when one company announces it will cease a price war or if its rival makes a similar announcement.

If price fixing is made illegal, the defendant can claim there was no agreement between the parties. However, this will not serve as a defense if the government or a private party shows the existence of an overt price-fixing pact. The defendants cannot use the reasonableness to customers’ defense, the necessity to avoid cutthroat competition, or the stimulating competitiveness defense to defend their actions.

For example, if a group of competing optometrists decided they would not join a vision care network unless the network increased reimbursement rates for patients on its plan. As a result of the optometrists’ refusal to see patients on the network plan, the firm will have to increase the amount it reimburses doctors. The FTC will rule that the optometrists’ pact is illegal for price fixing and that its leaders have coordinated to disseminate information about the agreement and ensure compliance among their peers.

Price-Fixing Laws and Enforcement

Overview

The Competition Act 1998 and the Enterprise Act 2002 make it an offense to engage in cartel activity or illegal price fixing in the United Kingdom. The Competition & Markets Authority (CMA), the Serious Fraud Office (SFO), and the Financial Conduct Authority (FCA) all conduct investigations into possible cartels and price fixing in the United Kingdom. As a result, numerous high-profile investigations into price fixing have led to significant penalties for businesses that broke antitrust laws, as seen in the Lorain Journal Co. v. United States case, which found the journal guilty. This indicates that neither the United States nor the United Kingdom allows any form of price fixing.

British Airways and Virgin Airways Cases

The Office of Fair Trading fined British Airways in August 2007 after the company was found guilty of illegal price fixing. After admitting to fixing the prices of fuel surcharges on their long-haul flights, British Airways (BA) received a £121.5 million penalty despite claiming that their activities were a lawful manner of recovering costs, given the fuel surcharges.

When Virgin Airways, a rival airline, found out that its employees and BAs had been collaborating, it reported the matter to the Office of Fair Trading (OFT), which investigated the claim and found probable cause for the allegation. After being tipped off in June 2006, the OFT granted Virgin Airways immunity following the airline’s admission of wrongdoing. After that, the US Department of Justice announced they would add US$300 million in further fines against British Airways. This indicates how UK law seriously handles any company’s violation of antitrust laws.

JD Sports Case

JD Sports recently admitted to its involvement in a price-fixing cartel from September 2018 through July 2019 for selling Glasgow Rangers FC replica football kits. The main difference is that this occurred because of an arrangement between JD Sports and Elite Sports (which ran the Gers Online website), including Glasgow Rangers. According to the allegations, JD Sports agreed to boost its pricing from £55 to £60 so that it would be comparable to the prices listed by Elite Sports on the official Glasgow Rangers website. While the Competition and Markets Authority’s preliminary findings have been made public, it remains unclear whether the CMA will determine that Glasgow Rangers has violated competition law and issue a fine to the football club.

JD can anticipate a fine once resolved because price fixing is illegal under UK and EU competition regulations. A monetary penalty of at least £ 2.5 million is required. This is a relatively small sum compared to JD Sports’ turnover and profitability. To put that in perspective, Dar Lighting, which was previously fined £ 1.5 million by the CMA for violating competition law by limiting the discounts merchants could offer online, was fined £1.5 million by the CMA. The penalties were nearly twice Dar Lighting’s net profit from the previous fiscal year, demonstrating the severe potential financial impact of such actions.

Belle Lingerie Case

Belle Lingerie (“Belle”), the defendant in Belle Lingerie v. Wacoal, offers its wares on third-party marketplaces, including eBay and Amazon, as well as its own website. However, Wacoal is a world-renowned producer and distributor of high-end branded lingerie and swimwear. According to Belle, it has been subjected to various unfair restrictions. Policies like these included a cap on wholesale prices, a floor on retail prices, and a halt to selling on digital marketplaces.

Belle was banned from selling on any eBay site in the world unless its retail and advertising pricing matched Wacoal’s suggested retail prices. If not, Wacoal requested that Belle remove the company’s wares from eBay’s sites so they wouldn’t appear in customer searches in other countries. As Belle claimed, keeping or holding retail pricing steady for Wacoal items would impact competitiveness in the UK. No verdict has been rendered yet, but the trial is still ongoing. Although making it illegal for competitors to collude and fix prices is primarily aimed at preventing price gouging, it also benefits businesses in direct competition with one another.

Summary

In addition, more benefits are associated with its prohibition than drawbacks, valid for both rivals and customers, as revealed by the Brown Shoe Co. Inc. v. United States case. Significant fines have been levied to prevent violations of the antitrust law regarding price fixing. The following is a discussion of the benefits and cons of making price-fixing a criminal offense, as the concept contains both positive and negative aspects.

Pros and Cons of Fixed-Price Contracts

Both the buyer and the seller benefit from the stability and predictability of a fixed price throughout the contract’s duration. There is always the chance that the price of a product or service could increase unexpectedly, which could disrupt a buyer’s budget and plans. An abrupt decline in the product’s value could leave the seller scrambling to replace lost revenue.

Concerns like this become moot when the price is set in stone. A fixed-price contract can also provide confidence for the buyer, as the seller will bear any risk associated with the project’s ultimate cost exceeding the initial estimate. Therefore, a fixed-price contract may be preferred for purchasing supplies or resources since it provides a clear budget rather than a contract where costs may increase continuously over time.

In contrast, a fixed-price contract provides the customer with greater certainty regarding the total cost of the agreed-upon commodity or service. However, this certainty may come at a higher initial outlay. Sellers may increase their asking price if they are aware of the potential downsides to setting a firm price. In addition, a price that a buyer and a seller might regularly negotiate reflects the additional risk the seller is incurring.

A fixed-price contract may be beneficial or detrimental, depending on the product’s market value and the cost of raw materials and other inputs. Suppose the value of the commodity or service suddenly skyrockets due to market forces. In that case, the buyer benefits while the seller loses out on the possible gains they could have experienced without the fixed-price contract agreement. When a product’s price drops quickly, the buyer is in a precarious position, while the seller enjoys an advantage.

Conclusion

Although the upfront cost of a fixed-price contract may be higher, the buyer can plan accordingly and set aside sufficient finances to meet the terms of the agreement. When the price of the service or commodity skyrockets, the buyer may be unable to keep their end of the bargain, forcing the seller to absorb a loss and consider taking legal action. A buyer’s business could suffer if the product or service is crucial to the buyer’s operations.

Most of the time, consumers seem to be the primary beneficiaries of price fixing. The reality, however, is that it safeguards both the vendor and the consumer. To avoid flouting the antitrust rules enacted by the federal government, price fixing between two or more competitors should be illegal. If the agreement to set prices is criminalized, there are benefits for both the supplier and the buyer, but the benefits are more evenly divided.

References

Cases

Belle Lingerie Limited v Wacoal EMEA Ltd and Wacoal Europe Ltd [2021] Tribunal, 2021.

British Airways v. Commission [2007] Third Chamber C-95/04 P, 2007.

Brown Shoe Co. Inc. v. United States [1962] Supreme Court 370 US 294, 1962.

Greece v United Kingdom [1952] ICJ 1, 1952.

Lorain Journal Co. v. United States [1951] Supreme Court 342 US 143, 1951.

Journal Articles

Buechel B and Krähenmann P, “Fixed Price Equilibria on Peer‐to‐peer Platforms: Lessons from Time‐based Currencies” (2022) 195 Journal of Economic Behavior & Organization 335. Web.

Naghdi A, “The Review of Defects of Anti-Competitive Agreements and Other Conducts in the UK” [2019] SSRN Electronic Journal. Web.

Pawlicz A, “Pros and Cons of Sharing Economy Regulation. Implications for Sustainable City Logistics” (2019) 39 Transportation Research Procedia 398. Web.

Seele P and others, “Mapping the Ethicality of Algorithmic Pricing: A Review of Dynamic and Personalized Pricing” (2019) 170 Journal of Business Ethics 697. Web.

Sites

Davies C, “The Fashionable World of Price Fixing” (Fox Williams, 2023). Web.