Price Rigging
Price rigging occurs when parties conspire to fix or inflate prices to achieve higher profits at the expense of the consumer. Historical examples of illegal price rigging include: Music companies were found to have engaged in illegal practices (such as minimum advertised prices) to inflate or fix the prices of compact discs in 1995-2000 to fight discount retailers. In the 1950s, manufacturers General Electric and Westinghouse conspired to fix prices for industrial products in a case that involved both price rigging and bid rigging, as well as secret meetings to pick winning and losing bids for orders in which winners rotated based on phases of the moon. Price rigging may take many forms: manufacturers and sellers may seek to set pricing floors, agree to a common minimum price or book price, limit discounting or markups, agree to impose or limit similar surcharges, or carve up territories or customer bases to limit competition within them. The Federal Trade Commission (FTC) has jurisdiction over civil price-fixing cases, and some states also prosecute price rigging antitrust cases, but most regulation is overseen by the United States Department of Justice (DOJ). While most cases of price rigging involve a conspiracy to keep prices as high as possible, it may also be employed to keep prices stable, fix them, or discount them.
What Is Price Rigging?
Price rigging occurs when parties conspire to fix or inflate prices to achieve higher profits at the expense of the consumer. Also known as "price fixing" or "collusion," price rigging can take place in any industry and is usually illegal.
As a term, "price rigging" is most commonly used in British English, while "price fixing" is more common in North America.
Understanding Price Rigging
Price rigging is a form of market manipulation. Cases of price rigging may be prosecuted under the antitrust laws of several different countries, as it runs contrary to natural market forces (such as supply and demand). It has the effect of dampening competition, which negatively impacts consumers as competition tends to provide greater variety and lower prices.
While most cases of price rigging involve a conspiracy to keep prices as high as possible, it may also be employed to keep prices stable, fix them, or discount them.
Price rigging may take many forms: manufacturers and sellers may seek to set pricing floors, agree to a common minimum price or book price, limit discounting or markups, agree to impose or limit similar surcharges, or carve up territories or customer bases to limit competition within them.
Price rigging is tolerated in certain businesses and locales.
Examples of Price Rigging
Price rigging may be found in a variety of industries, though it is not always illegal. Airline ticket prices and oil prices are fixed by the International Air Transport Association (IATA) and the Organization of the Petroleum Exporting Countries (OPEC), respectively, for example.
Historical examples of illegal price rigging include:
Price rigging may also be used by traders to artificially inflate the price of a stock to lure in more investors. As new investors buy up shares, share prices increase in value until the manipulators sell-off, which causes share prices to collapse. OTC Bulletin Board shares, also known as penny stocks, are especially vulnerable to price rigging.
Price Rigging and Regulation
In the United States, price rigging is defined and prohibited in the Sherman Antitrust Act (of 1890) as a federal offense. The Federal Trade Commission (FTC) has jurisdiction over civil price-fixing cases, and some states also prosecute price rigging antitrust cases, but most regulation is overseen by the United States Department of Justice (DOJ).
In Canada, price rigging is a criminal act under Section 45 of the Competition Act. Meanwhile, in the United Kingdom, cartels and price rigging are regulated by several financial regulators. The leading force is the Competition and Markets Authority (CMA), although anti-competitive activity can also be reported to the regulator that governs the sector where price rigging is occurring.
Related terms:
Bid Rigging
Bid rigging is an illegal practice that involves competing parties colluding to choose the winner of a bidding process. read more
Cartel
A cartel is an organization created between a group of producers of a good or service to regulate supply in order to manipulate prices. read more
Collusion
Collusion is an agreement between entities or individuals working together to influence a market or pricing for their own advantage. read more
Corner
To corner in an investing context is to gain control over a business, stock, or commodity to the point where it is possible to manipulate the price. read more
Duopoly
A duopoly is a situation where two companies own all or nearly all of the market for a given product or service; it is the most basic form of an oligopoly. read more
Fixing
Fixing is the practice of setting the price of a product rather than allowing it to be determined by the free market. read more
Fraud
Fraud, in a general sense, is purposeful deceit designed to provide the perpetrator with unlawful gain or to deny a right to a victim. read more
Monopoly
A monopoly is the domination of an industry by a single company, to the point of excluding all other viable competitors. read more
Organization of the Petroleum Exporting Countries (OPEC)
OPEC or the Organization of the Petroleum Exporting Countries consists of the major oil-exporting nations. Read about OPEC’s impact on oil supply and prices. read more
Over-The-Counter Bulletin Board (OTCBB)
The OTCBB is a regulated quotation service for OTC securities provided by the Financial Industry Regulatory Authority (FINRA) to its members. read more