Price fixing occurs when competitors reach an agreement (written, oral, or inferred from conduct) with the purpose and effect of raising, lowering, or stabilizing prices for services or products. Competitors should freely compete in the marketplace and individually fix their prices based on the market forces (supply and demand). Free competition benefits consumers because it should lead to lower prices. When competitors reach an agreement, this type of agreement in restraint of trade is illegal under antitrust laws provided it may lead to higher prices or elimination of competitors, therefore harming consumers.
Section 1 of the Sherman Act condemns any contracts, combinations, and conspiracies in restraint of trade, which includes vertical and horizontal price-fixing schemes. Horizontal price fixing involves competitors that agree to raise, lower or stabilize prices. For example, when two competing fast-food chains that sell hamburgers agree on the retail price of cheeseburgers, that horizontal agreement is illegal under antitrust laws. Vertical price fixing involves members of the supply chain that agree to raise, lower or stabilize prices. For example, when manufacturers of a product force the retailers to sell the product at a predetermined retail price or require their retailers to follow “suggested” retail price policies that do not allow discounts to customers. These types of agreements are also illegal under antitrust laws.
[Last updated in July of 2021 by the Wex Definitions Team]
- wex
- COMMERCE
- business law
- antitrust
- unfair competition
- wex definitions
Term | Definition the amount of money that is charged for "something" of value | |
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Term | Definition setting a specific level of profit as an objective | |
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Term profit maximization objective | | Definition seeking to get as much profit as possible | |
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Term | Definition seeking some level of unit sales, dollar sales, or share of market-without referring to profit | |
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Term | Definition don't rock the pricing boat objectives, e.g. wanting to stabilize prices, meet competition, avoid competiton | |
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Term | Definition aggressive action on one or more of the Ps other than price | |
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Term | Definition consciously setting prices, instead of letting market forces (or auctions) deciding their prices, most firms set their own prices. | |
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Term | Definition policy offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities. | |
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Term | Definition policy offering the same product and quantities to different customers and different prices | |
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Term | Definition policy trying to sell the top (skim of the cream) of a market-the top of the demand curve-at a high price before aiming at the more price-sensitive customers. | |
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Term penetration pricing policy | | Definition trying to sell the whole market at one low price. | |
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Term introductory price dealing | | Definition temporary price cuts to speed new products into a market and get customers to try them | |
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Term | Definition the prices final customers or users are normally asked to pay for products | |
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Term | Definition reductions from list price given by a seller to buyers who either give up some marketing function or provide the function themselves | |
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Term | Definition discounts offered to encourage customers to buy in larger amounts. | |
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Term Cumulative quantity discounts | | Definition Apply to purchases over a given period-such as a year- and the discount usually increases as the amount purchased increases. | |
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Term Noncumulative quantity discounts | | Definition discounts that apply only to individual orders | |
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Term | Definition discounts offered to encourage buyers to buy earlier than present demand requires. | |
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Term | Definition means that the payment for the face value of the invoice is due immediately. | |
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Term | Definition reductions in price to encourage buyers to pay their bills quickly | |
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Term | Definition net 30,means the buyer can take a 2 percent discount off of the face value of the invoice if the invoice is paid within 10 days. | |
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Term trade (functional) discount | | Definition a list price reduction given to channel members for the job they are going to do. | |
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Term | Definition a temporary discount from the list price | |
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Term | Definition setting a low list price rather than relying on frequent sales, discounts, or allowances. | |
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Term | Definition like discounts, are given to final consumers, customers, or channel members for doing something accepting less of something | |
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Term | Definition price reductions given to firms in the channel to encourage them to advertise or otherwise promote the supplier's products locally. | |
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Term | Definition sometimes called slotting allowances-given to an intermediary to get shelf space for a product | |
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Term Push money (or prize money) allowances | | Definition sometimes called PMs or spiffs, are given to retailers by manufacturers or wholesalers to pass on to the retailers' salesclerks for aggresively selling certain items. | |
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Term | Definition a price reduction given for used products when similar new products are bought | |
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Term | Definition refunds paid to consumers after a purchase | |
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Term | Definition free on board, the seller pays the cost of loading the products onto some vehicle | |
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Term | Definition making average freight charges to all buyers within specific geographic areas | |
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Term Uniform delivered pricing | | Definition making an average freight charge to all buyers, used most often when (1) transportation costs are relatively low and (2)the seller wishes to sell in all geographic areas at one price, perhaps a nationally advertised price. | |
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Term freight-absorbing pricing | | Definition absorbing freight cost so that a firm's delivered price meets that of the nearest competitor. | |
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Term | Definition means setting a fair price level for a marketing mix that really give the target market superior customer value | |
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Term Unfair trade practice acts | | Definition put a lower limit on prices, especially at the wholesale and retail levels. | |
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Term | Definition pricing a product sold in a foreign market below the cost of producing it or at a price lower than in its domestic market. | |
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Term | Definition prices customers are shown to suggest that the prices has been discounted from list | |
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Term | Definition amendment which bans "unfair or deceptive acts of commerce" | |
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Term | Definition competitors getting together to raise, lower, or stabilize prices-common and relatively easy. But it is also completely illegal in the USA | |
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Term Robinson-Patman Act (1936) | | Definition makes illegal any price discrimination, which is selling the same products to different buyers at different prices-if it injures competition. | |
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