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What is Fixing? Types, Examples, and Legal Aspects

Last updated 03/25/2024 by

Alessandra Nicole

Edited by

Fact checked by

Fixing involves setting the price of a product, bypassing free-market forces. This article delves into its practice, implications, and legality, discussing its forms, legality, and notable cases.

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What is fixing?

In the realm of commerce, fixing constitutes the deliberate act of setting a product’s price, circumventing the natural sway of free-market dynamics. Though primarily associated with price-fixing, it extends to controlling product supply to maintain or elevate price levels. Fixing, in its most prevalent form, is deemed illegal when it involves collusion between producers or suppliers, distorting fair market values. This piece aims to dissect the nuances of fixing, its implications, and legal ramifications.

Understanding the practice

In a free market, the equilibrium price of a product or service is conventionally dictated by the interplay of supply and demand. It operates on the principle that excessive pricing disincentivizes buyers while lower prices discourage sellers. Eventually, the market reaches an equilibrium where both parties find the price acceptable.
The crux of illegal price-fixing involves competitors clandestinely consenting to uphold predetermined price points, eschewing competitive pricing that could financially harm all involved parties.

Legal and illegal dimensions

Fixing, when done within legal boundaries, finds manifestation in practices like the currency peg, commonly seen in various international contexts. However, when it involves competitors covertly conspiring to manipulate prices, it runs afoul of antitrust laws. The FTC defines illegal price-fixing as any agreement—written, verbal, or inferred—among competitors that impacts price or competitive terms, leading to legal ramifications.
Weigh the risks and benefits
Here is a list of the benefits and the drawbacks to consider.
  • Potential price stability
  • Controlled market conditions
  • Hinders fair competition
  • May lead to inflated consumer costs

Exploring notable cases

Noteworthy instances shed light on the impact and consequences of price-fixing. For instance, the 1970s’ OAPEC’s drastic reduction in oil supply led to severe shortages and a significant price hike. Similarly, the Roche case in 1999 resulted in a substantial fine over a price-fixing debacle linked to vitamin prices.

Legal exceptions: currency peg

Certain countries peg their currencies to established benchmarks, such as the U.S. dollar. This practice aids trade and tourism, maintaining currency stability, and is a lawful facet of the global economic landscape.

Frequently asked questions

Is fixing always illegal?

Fixing becomes illegal when it involves collusion among producers or suppliers to manipulate prices.

Are there any legal forms of fixing?

Yes, practices like the currency peg, used by several countries, are legal forms of fixing.

Key takeaways

  • Fixing involves setting prices outside free-market mechanisms.
  • Illegal fixing entails collusion among competitors, distorting fair market values.
  • Notable cases like the OAPEC and Roche highlight the ramifications of price-fixing.
  • Legal forms of fixing, such as the currency peg, exist within the global economy.

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