What Is Price Rigging?
Price rigging is an illegal action that 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. 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 tends to favor the consumer with greater variety and lower prices.
Price rigging is a form of market manipulation. As a term, "price rigging" is most commonly used in British English, while "price fixing" is more common in North America.
- Price rigging is also known as price fixing or collusion and is not limited to one type of industry.
- It is a form of market manipulation used mostly in British English.
- In the U.S., the Sherman Antitrust Act prohibits price rigging.
How Price Rigging Works
While most cases of price rigging involve a conspiracy to keep prices as high as possible, is 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.
Example 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 IATA and OPEC, respectively, for example.
- 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 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 has jurisdiction over civil price fixing cases, and some states also prosecute price rigging antitrust cases, but most regulation is by the United States Department of Justice.
In Canada, price rigging is a criminal act under Section 45 of the Competition Act. In the United Kingdom, the Office of Fair Trading regulates price rigging, which has been approved for the distribution of newspapers and magazines (retailers who sell periodicals below their cover price may have their supply cut off).