Price Fixing

by Business Case Studies on Monday 23rd April, 2007

In the news … Price Fixing

European regulators have imposed fines totalling 273.7m euros (£185m) on Dutch brewers, including Heineken and Grolsch, for price fixing. The European Commission have accused the firms of “stifling competition by sharing pricing policy and levels” (BBC, 18th April 2007). Competition commissioner Neelie Kroes commented:

“It is unacceptable that the major beer suppliers colluded to hike up prices and carve up the market between themselves. The highest management of these companies knew very well that their behaviour was illegal, but they went ahead anyway and tried to cover their tracks”.(inthenews.co.uk, 18th April 2007)

Previous examples of price fixing include Manchester United and several leading sportswear firms who were found guilty of price fixing on football shirts (BBC, 20th May 2005), and Samsung Electronics who agreed to pay $90m (£46m) to settle legal action over microchip price-fixing allegations in the US (BBC Video). This has lead to eventual prison sentences for three Samsung executives who admitted involvement in the price fixing (BBC, 22nd March 2006).

In addition to ensuring that price fixing does not occur, there are a number of other European and UK regulations that aim to protect the consumer. A number these laws are outlined in the Times 100 DSGi case study. For example, the Consumer Protection Act 1997, which governs the way in which prices are presented to customers.

“This covers most forms of promotional marketing. There are rules which deal with, for example, how sale prices can be claimed, introductory offers, recommended prices and free offers”.

So whilst the approach that a company takes to pricing their products or services can strongly influence their profitability, firms need to ensure that this is undertaken within the confines of laws that aim to protect the consumer and promote competition.

Sources:

Dutch brewers fined over cartel – BBC News, 18 April 2007

Football kit 'price-fixers' fined – BBC News, 20 May 2005

Samsung men 'admit' price fixing – BBC News, 22 March 2006

Heineken and Grolsch fined for price-fixing  – Inthenews.co.uk, 18 April 2007

Potential Study Questions:

What is meant by the term 'collusion'?

For economists: in what type of market structure is collusion more likely?

Why is price fixing illegal in the UKand rest of  Europe?

Previous post:

Next post: