Any agreement among competitors regarding the price of goods sold or the price of services rendered is a per se violation of the Sherman Act and is subject to criminal prosecution by the Antitrust Division of the Department of Justice. An agreement to increase, maintain, or even reduce prices among competitors is known as price fixing. Price fixing can take many forms, but invariably involves a conspiracy among sellers regarding the price of their product. For example, two competing retail tire dealers may purchase their tires from the same manufacturer at the same price. If the two went for drinks one night and wound up agreeing to mark up their tires by 20% before selling to their customers, this would be an illegal agreement and a prime example of a price fixing scheme. The reason such an agreement is illegal is that in the absence of such an agreement, each shop would independently arrive at the mark up required to be profitable, and the most efficient operation would offer the cheaper tire to the customer. However, since a collusive agreement exists between the two shops, customers are deprived of the benefit of the shops’ price competition while the tire shops are able to sell tires at artificially inflated prices.
Price fixing schemes include, but are not limited to, agreements between competing firms to:
- Hold prices firm
- Establish or reduce discounts
- Adopt a standard pricing formula
- Adhere to a pricing schedule
- Fix credit terms
- Not advertise prices
- Engage in cooperative price advertising
- Impose mandatory surcharges
These types of agreements are rarely memorialized in writing since they are known to be illegal, and can therefore be very hard to detect. Often firms will take turns being the low-price retailer in order to give the appearance of legitimacy. For this reason, circumstantial evidence such as pricing patterns or suspicious statements are often used by prosecutors in trying an antitrust case. In some instances, a non-collusive market participant could face price fixing charges simply as a result of unfortunate circumstances that throw up red flags for investigators.
The law demarcates an important distinction between two forms of price fixing agreements. Horizontal price fixing schemes, which are the type we have discussed, are completely prohibited. The term “horizontal” merely refers to the participants in the scheme, who compete against each other at the same link of the industry supply chain. By contrast, vertical price fixing schemes are no longer a per se violation of the Sherman Act. The term “vertical” in this sense means that members of different links up and down the supply chain agree on terms regarding prices at which the goods are to be ultimately sold. For example, in the retail tire dealer scenario, it would be entirely illegal for the competing firms to collude to fix their prices. However, it would not be a violation of the Sherman Act for the tire manufacturer to sell to the retailer on the condition that the retailer mark up the tires by 10%.
There are limited defenses to a charge of price fixing. Since a price fixing agreement is a per se violation of the Sherman Act, defendants will not be allowed to introduce justifications for their conduct, such as unfavorable market conditions or cost burdens. For this reason, it is important that a defendant seek the most qualified counsel available to advocate on his behalf in an antitrust prosecution. The attorneys at Parkman White, LLP are seasoned professional trial lawyers with special expertise in the area of criminal antitrust litigation.