Is there something inherently wrong with price fixing, or is it just how people do it?

Question

To clarify my question, please first consider these scenarios:

1. My brother and I share a business. We agree to sell cans of beans at a mutually agreed price. We don't prevent anyone else from producing, buying or selling anything.
2. As #1, but we're neighbors with separate businesses.
3. As #1, but we happen to be all the sellers of beans in North America.
4. As #1, w/ potable water instead of canned beans.

I don't see what is wrong or non-market in the above scenarios, for
(A) it is each buyer's free choice to buy at that price or not,
(B) it is each seller's free choice what price he offers HIS goods at,
(C) the buyers impose no unnatural barriers to competition.

Is the only problem that one of A,B,C are violated in reality (bribes, threats, trade secrets, etc.); OR are any of 1-4 wrong in themselves? If the latter, then how? (E.g., cos people really don't have an unrestricted right to set the price for what they rightfully own and produce, even if they coerce no one?!?)

Answer 1

Let's look at the economics of each of your cases:

1. You and your brother agree to each sell beans at a certain price.

1a. Your price is ten cents higher than the shop down the street. No one buys your beans. You go out of business. This is not price fixing, it's just lousy business.

1b. You and your brother sell beans at ten cents less than all the other shops in town. Business is booming. Are you breaking even? Are you making a profit? If so, keep it up! People are better off with cheaper beans, and you and your brother are raking in the dough. This isn't price fixing, either. It's healthy competition.

2. You are neighbors. Ditto the scenarios above. Not price fixing; just competition.

3. You are sellers of all beans in North America. You all agree to sell at the same price. This is called a cartel. Let's assume all sellers abide by the agreement and no one cheats and sells beans for a penny less. Let's also assume no beans can be imported (otherwise, you'd be back to the competition scenario, not the cartel).

Can you make unlimited profits, now that you have no competition? No. There are lots of us who won't buy beans for $1000 per can no matter if it means never eating a bean again for the rest of our lives. Now your constraints are based solely on the demand curve. You can set a price, and for those of us that think it's too high, we'll eat tuna instead. Fewer beans will be sold, at least until someone notices and decides to open another canned bean plant and give you some competition. When the competition steps in, you don't have a fixed price any more.

4. Potable water: Potable water doesn't have an easy substitute like beans. To some extent, a high price for potable water will encourage people to conserve. To some extent, they can find substitutes by cleaning water themselves through filters, boilers, distillers, chemicals -- even desalinization methods can be used for salt water. But at some point, some poor people are going to suffer if your price is too high and they can't manage to clean water on their own.

Let's look at another scenario. When we talk about price fixing, usually we mean that the government declares a price, and no one is allowed by law to charge a different price.

Let's say the government will not allow you to buy beans for less than $10 per can. Fewer beans will be sold, because not many people will be willing to pay $10 per can. Some people might be willing to pay $9 per can, but that's illegal.

Likewise, let's say the government will not allow producers to sell beans for more than 25 cents a can. Fewer beans will be sold, because fewer producers will be willing to sell it at that price. They'll sell tuna instead, or they'll close up and go become travel agents. Some producers might be willing to sell beans at 50 cents a can, but that's illegal.

Conclusion: Price fixing can only be done when you have some control, for instance, when all suppliers agree, and no competitors are able to enter the market, or when the government fixes a price. Whether the price is artificially high or artificially low, the result of an artificial price is that fewer products are traded.

Is this morally wrong? If you are keeping others out of the market, or if you are preventing others from trading freely, probably, but only in proportion to the amount that you are making people worse off. If your interference in the market causes me to pay more for beans even when others are willing to sell me beans for less, I'll be annoyed, and so will those sellers. If your interference in the market causes poor people to die of thirst, then yes, definitely.

Answer 2

I'd can't believe I am going to say this and sensationalize the whole thing. But you are right, there is nothing wrong with price fixing. As long as you are a Communist. That's what Communism is all about right - arbitrarily fixing prices. You are talking very UnAmerican. However, the great capitalist system is based on efficiency and selling the right amount at the right price. That is only possible in a free market society, which price fixing would be a barrier to.

In 2 you are agreeing not to compete. That holds up the free market process. What you are going to have is a local situation where things aren't fair. The most likely loser is the poor. Those with cars will drive to the next neighbourhood and buy cheaper beans. The poor that can't make it that far are forced to buy yours at higher price or go without.

In 3 you are a monopoly, and arbitrarily effecting the the amount of beans grown verses other crops and effecting the amount of beans people buy. If you set the price too high, people are enjoying less beans than they should, and people are growing more beans than they should while growing less strawberries or other food given farmland is fixed. As this is imbalanced, there you would be hording beans, or destroying extra crops. If you charge too little everyone will buy extra beans and you wouldn't be able to stock enough.

Then when you start talking water, you are playing with people's lives. If poor people can't pay your water price, they die. Don't think so? See my link.

Answer 3

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Answer 4

it is an interesting question because it is a case where govt interferes with situations where, as you say, a & b apply - which shows that it is not true that govt agrees that we have right to sell at any price we like - in cases 2 & 3, c applies: they are barriers to competition - i assume in case 4, you mean 1, 2 & 3 with water instead of beans - which only highlights how dangerous barriers to competition/freemarket can be - there is coercion in 2 & 3: market forces are chained, the buyer is not getting the benefit of market forces - the difference between 1 & 2 is that the distinction of plurality of businesses is set at the level of businesses: competition is inhibited if separate businesses fix prices between them - agreement within a business is different - which raises the question: what is to stop businesses uniting so they can fix prices? - answer is probably: nothing, which is why it happens - so monopolism is 'grown' - the more fundamental reason why price fixing is prohibited [where it is prohibited] is that it is theft - it is not money for work, for products, for value, but money for nothing - why is it immoral to be free to set any price the seller likes? - simply because charging more for anything than the total costs [all the value [work] in the product] is theft, ie, money [=goods = others' work] for nothing, which means nothing for money [work] for buyers - why is this immoral? ie, why is it selfdestructive? how does the seller suffer by overcharging? what is the downside for him? because, over trillions of transactions, this drop of theft/inequity becomes an ocean of injustice, of overpay/underpay, of unjust wealth/poverty, of overpower/underpower, tyranny/slavery, which breaks states, which causes war & crime, which are good for no one - money is good for almost all good things, including all necessities, so theft of money [work] is theft of just about everything, ie, is the greatest injury, & breeds the greatest resentment, illfeeling, danger, violence - & violence is necessarily ever-escalative [as both sides try to win] so little drops of inequity/theft/overcharging are the cause of almost all the war & crime - as inequity grows & grows & grows & becomes more & more harmful - the fact is that in any transaction the two things can never be exactly same value [workcontent], so there is a little drop of inequity in all transaction, which, multiplied by trillions of transactions over 1000s of years of trade, has brought us to this very sorry condition of superextreme injustice, violence, weaponry & unhappiness, close to nuclear extinction & racing towards it extremely fast with every escalation of superextreme violence - there are very likely too few ppl with the maturity, realism, responsibility, intelligence, seriousness & character to do anything effective about it, & we will continue our lemminglike plunge into the abyss & oblivion - after all, we havent got real in the last 5000 years of growing inequity & violence, have we - the millenia-long growth of war & weaponry has been unable to set our alarmbells ringing, to wake us from our fleawracked sleep - i argue that, because govt interference can never eradicate all drops [& jugs] of inequity, & yet those drops are fatal to happiness & survival, it is just & vital to limit fortunes to a best estimate of the most a person can earn by their own work in a lifetime [not merely get by money-for-nothing's - which can generate billions in a lifetime] & thus prevent extinction soon & misery until - see my other economics answers for expansions of these points