Price Fixing and the Law: What You Need To Know

Price fixing

Do you know you can get up to $70 back from the dairy industry if you’ve purchased any milk product in the state of Michigan since 2003?

Why would anyone just give you money for having purchased milk?

It’s because the dairy industry in Michigan and 14 other states has been slapped with a class action lawsuit for price fixing.

What is Price Fixing?

Price Fixing is when competing companies meet together – in secret – to determine and agree to restrict their competition with each other. They agree upon a price at which their product will be sold to consumers.

This often makes for higher prices for consumers than if companies were honestly competing with each other for business.

You might not think $70 sounds like a lot of money for a 15 year period for all the dairy products you’ve bought. After all, that’s a fraction of a cent for each item you purchased. However, try multiplying that fraction by millions. It adds up to a hefty profit for the company which it has obtained illegally.

What Price Fixing Isn’t

It can be hard to catch price fixing because prices for commodities are often similar in a competitive market. The price of gas, for instance, is often almost identical at any gas station. The product is the same wherever you go.

If two businesses raise their prices simultaneously, it’s not automatically an instance of price fixing. They may both be responding to the same market conditions. Examples include a new oil well or pipeline, or a war in the Middle East.

Jail Time for Price Fixing

The 2009 movie “The Informant,” with Matt Damon is a comedy/thriller about the very prevalent practice of price fixing among international businesses.

In this case – a true story from 1999 in which three executives of Archer Daniels Midland ended up being sentenced to 2-2/12 years in prison and $350,000 fines. The product was the feed additive Lysine.

Mark Whitacre, one of the executives sentenced, worked with the FBI for many years collecting evidence against his company. It included recording conversations between his company and Japanese and Korean businesses where they were making agreements on the price and dividing up distribution quantities between their companies.

Price fixing isn’t always just naming a price consumers will pay. It can also involve agreeing to other types of terms that will end up affecting the price to consumers, such as:

  • Pricing policies
  • Promotions
  • Bids
  • Costs
  • Capacity
  • Terms or conditions of sale, including credit terms
  • Discounts
  • Identity of customers
  • Allocation of customers or sales areas
  • Production quotas
  • R&D plans

There is no defense against price fixing. It’s simply illegal. Companies can’t say the prices they set were reasonable, and that it was necessary to avoid competition getting out of hand or that it stimulated the market.

If a pattern of behavior is shown to prove that price fixing occurred, a company can be fined and its executives can end up serving jail time like those of Archer Daniels Midland.

The Federal Trade Commission states that price fixing is a major concern of government antitrust enforcement. In addition, it can be prosecuted as a criminal federal offense in the United States.

Take Away

According to Kurt Eichenwald, the writer of many stories of business corruption for the New York Times, corruption is rampant in the business world, lying is the norm and price fixing is just one of variety of complex problems.

What do you think? Should there be more criminal penalties for businesses operating in an unfair way to consumers?

If you or someone you know has been charged with price fixing, it is critical that an experienced attorney be consulted. Please contact my office today.

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