If you have never heard of price fixing, believe it or not, there’s a movie devoted to this dry, illegal business practice.
This movie is called The Informant. It stars Matt Damon as real-life informant Mark Whitacre, who went undercover for the FBI to record over 250 hours of secret audio when he was an executive at Archer Daniels Midland, a large American food company.
The movie is based on a Kurt Eichenwald book by the same name. There is also an episode of the popular NPR radio show This American Life devoted to this story.
What is Price Fixing?
Price fixing is all about an agreement.
If you have heard a little bit about what price fixing is and how it affects consumers, don’t be fooled when the price of certain commodities is the same at different places.
Companies may be responding to the same market forces. Gas station owners, for instance, are subject to this all the time.
Not only that but when competitors prominently advertise prices, it’s much more likely those prices will be about the same in every place because business owners may lower prices to be competitive.
The agreement between major competitors to raise or lower, or even to stabilize prices is what is illegal.
They are attempting to control supply and demand in their favor.
It works against consumers and businesses further down the chain.
In the case of ADM, the price-fixing Mark Whitacre showed the FBI was systematic, widespread, and casual.
The story of The Informant centers on executives at globally competing companies, and how they were conspiring to set the price for lysine, an animal food additive.
Mark Whitacre caught this practice on audio and videotape. Without him, the FBI would not have been able to make its case.
Types of Price Fixing
What ADM was engaged in was called horizontal price fixing. This is price fixing among competitors. There is a secret agreement among companies who should be competing for their market share to set a minimum or maximum price for a product.
Price fixing along the supply chain is called vertical price fixing. It would include those companies involved along the production chain including the manufacturers, producers, and retailers of a commodity. If they agreed together to collectively set a minimum or maximum price, that would be illegal.
Penalties for Price Fixing
Price fixing is very difficult to prove, as you will learn from Mark Whitacre’s story. It happens during private meetings and phone conversations.
However, any business competitors engaged in conversation about specific topics will come under scrutiny, even if those topics don’t relate directly to price. Topics include:
- Shipping fees
- Discount Programs
- Financing rates
- Pricing policies
- Terms or conditions of sale
- Credit terms
- Production Quotas
- Identity of customers
- Research and Development plans
- Restriction of production
- Allocation of customers or sales areas
- Restriction of sales
- Restriction of output
If a business executive is charged with price fixing, he or she may maintain there was no agreement. However, if a deal can be proven, there is no justification for it.
It is illegal even if the prices set were reasonable to customers, if they stimulated competition or if they were deemed necessary to avoid cutthroat competition.
Price fixing is a serious white collar federal crime in the United States. The penalty for price fixing, under the Sherman Act, is $100 million for corporations and $1 million for individuals. Those found guilty of price fixing may also face up to 10 years in prison.
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.
Price fixing, even if it seems fair to consumers and can be argued to stimulate competition, is an illegal agreement between competing companies. It is an antitrust violation because it is anti-competitive and anti-capitalist.
Contact an Antitrust Defense Lawyer
If you are or your company is being investigated for price fixing or other antitrust violation, it is critical that you contact an experienced antitrust defense lawyer.
David J. Kramer has been successfully defending clients since 1992 in both federal and state courts. Call David today.