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Price Fixing

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Definition: Price fixing is when two entities, usually companies, agree they will sell a product at a set price. Usually two competitors fix prices to prevent discounting. This will help them maintain profit margins.

Monopolies are also able to fix prices since they operate without competitors who could compete against price. Governments can also fix prices by setting price freezes. This happened in the 1970s, when inflation threatened to destroy consumers' confidence in the economy itself. The government fixed prices to stop inflation and restore confidence. However, it is a very clumsy tool, and is only used when monetary policy has proven ineffective.

Price fixing can also occur between a manufacturer and a retailer if the manufacturer were able to require the retailer follow the "Manufacturer's Suggested Retail Price." This type of price fixing has been illegal since 1911, thanks to the Supreme Court's decision in Miles vs Park when the Court said price fixing violated the Sherman Anti-Trust Act.

Why Price-fixing Is Illegal

Price-fixing disrupts the normal forces of supply and demand.
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