Healthy competition vs. illegal price-fixing: Where's the line?
It doesn't take an MBA to understand that raising or lowering the price of a product affects a company's competition in the market. Whether it's in response to consumer demand or a competitor's change in its pricing, companies are free to set the prices of their own goods or services. It's one of the main tenets of our free market economy.
But there are limitations to what companies can do when raising or lowering prices. A prime example is price-fixing, in which two or more companies agree to restrict competition by raising, lowering or stabilizing their prices. This business practice is illegal, and those who engage in it can face heavy penalties from the government agencies that enforce antitrust laws.
Of course, there are many instances in which competitors legally change their pricing at the same time. A gas station may lower its per-gallon rate in response to the price change of the station across the street, a sign of ordinary and healthy competition. Price-fixing, on the other hand, would occur when the two station owners collude to hike up their prices, by agreement, at the expense of consumers or other businesses. This could be especially detrimental in a market where there are few other choices for consumers -- say, in a small town with no other gas stations. Years ago, when I was a prosecutor with the Antitrust Division of the DOJ, I participated in a criminal prosecution of a number of independendent gasoline marketers and four of their executives in Florida.
Price-fixing can also extend to agreements to adopt uniform discounts, pricing formulas or terms and conditions of sales. Bid rigging and dividing up customers or territories are other practices, when engaged in by competitors, that are often prosecuted as criminal offenses.
The Antitrust Division has multiple ways of identifying and investigating price-fixing. It may examine company memos and other records of its pricing changes. Investigators may also gather evidence from meetings or conversations between competitors. Ultimately members of the conspiring companies may be compelled to testify.
Because price-fixing and other illegal business practices can cost companies and individuals millions of dollars and may result in prison time, they are not charges to take lightly. If your company is suspected of price-fixing, the best strategy is to be proactive as soon as possible. An attorney with vast experience in white collar crime defense can often step in during the early stages of the investigation to work with prosecutors and investigators, as well as advise you and other members of your company in responding to investigative demands, and possible charges.