Cardinal Sin No. 1 – Price Fixing
Last week we gave you an overview of the four Cardinal Sins under the Competition Ordinance. This week we discuss Cardinal Sin No.1 – price fixing.
Price fixing is one of the worst violations of competition law that will attract the most serious fines. While price fixing may sound straightforward and intuitive, in practice, the legal concept of price fixing captures a wide array of conduct, some of which you may find yourself inadvertently engaging in.
In this article we examine the elements of price fixing and use examples to illustrate how you may avoid entering into a price fixing agreement.
Price fixing refers to an agreement between competitors to fix, maintain, increase or otherwise control prices.
WHY FIX PRICES?
Price fixing inflates prices and therefore profits by preventing competitors from undercutting each other on price.
WHAT IS AN AGREEMENT?
A mere "meeting of minds" suffices to bring anti-competitive conduct within the scope of the First Conduct Rule. Anti-competitive agreements do not have to be, and indeed, are most often not, set in stone.
To illustrate, an agreement may arise from any form of understanding, including:
What is price?
The concept of price in a competition law context encompasses all components of price. This may include any discount, rebate, allowance, price concession or other advantage in relation to the supply of goods or services:
An agreement to fix any of the above components could constitute price fixing.
How are prices fixed?
As mentioned above the concept of price fixing includes any form of controlling prices, such as maintaining or increasing prices. Below are some examples of conduct that can amount to "fixing":
- Agreeing to a fee schedule.
- Capping the level of discount.
- Publishing "recommended" fee schedules which competitors then follow.
Next week we will take a look at Cardinal Sin No.2 – output limitation.
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