Horizontal price fixing and vertical price fixing are anti-competitive strategies where businesses collaborate to set prices rather than competing to set their own prices.
Horizontal price fixing occurs when two or more companies that are in the same industry and at the same supply level agree to set the same price on a particular product or service. This can be a process of elimination where one company agrees to lower its price to match a competing company.
It can also be a strategy to increase market share – companies agree to raise prices of a certain product so that consumers are more likely to buy products of the company that has kept its price lower than the rest of the market.
Vertical price fixing occurs when two or more companies in the same industry, but on different steps of the supply chain, agree on a certain price for a certain product or service. This strategy is usually used to prevent discounting and sales-bargaining from happening in the market.
The companies might decide to restrict the terms and conditions of sale, such as restricting discounts for certain customers or setting a minimum purchasing limit. This way, retailers and distributors are not able to undercut each other on prices, allowing the companies to boost their bottom line.
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What are the two types of price-fixing?
Price-fixing refers to a form of collusion between two or more parties, typically businesses, to manipulate the price of a particular product or service. There are two main types of price-fixing: horizontal and vertical.
Horizontal price-fixing occurs when businesses at the same level or within the same industry agree to set or fix prices on products or services. This type of price-fixing often affects entire markets or industries and is considered illegal in most countries due to the negative effects it has on consumers.
Vertical price-fixing takes place when two businesses at different levels of production or distribution in the supply chain agree to set prices for particular goods or services. For example, if a manufacturer and distributor agree to fix the price of a certain product, this would be considered vertical price-fixing.
This type of price-fixing is often seen as less restrictive on competition and is more likely to be treated as acceptable.
What is vertical price fixing in marketing?
Vertical price fixing in marketing is a practice in which two companies at different levels in an industry’s supply chain fix their respective prices. This type of practice involves one company controlling the prices set by the other in the supply chain, usually with the aim of increasing the profits of one company over the other.
For example, a retailer may agree to certain prices set by the manufacturer in order to maintain a higher profit margin on the goods they sell. It can be a necessary tool for many retail outlets to remain competitive and survive against other similar stores in the same market.
However, the practice is seen as anti-competitive and has been prohibited by antitrust laws in many countries. Therefore, it is important for companies to understand the laws surrounding this practice and pay attention to ensure that any pricing agreements do not cause harm to the consumer.
Companies should also ensure that any practices related to vertical price fixing do not interfere with the free flow of goods and services from suppliers to consumers. In the US, vertical price fixing is a violation of the Sherman Antitrust Act.
What is an example of a vertical market?
A vertical market is a market that sells goods and services that cater to a specific industry, profession, or group of customers. A vertical market will typically offer products that are specialized to meet the specific needs of that industry.
Examples of vertical markets include healthcare, education, agriculture, construction, hospitality, financial services, military, energy, retail, manufacturing, and distribution. For example, the healthcare vertical market offers medical equipment, laboratory supplies, medical technology, home healthcare products, and medical services that meet the specific needs of the healthcare industry.
Similarly, the education vertical market offers educational materials, software, hardware, and services for educators, administrators, and students.
What is price-fixing in simple words?
Price-fixing is an anti-competitive practice that is illegal in most countries. It occurs when two or more companies agree to set the price of goods and services, rather than allowing market forces to determine the price.
This type of collusion removes competition from the market, limits buyer choice and reduces the incentive for companies to innovate and lower prices. Price-fixing can lead to higher prices for consumers, reduced quality of goods and services, and increased profits for the companies involved in the collusion.
It is illegal because of the potential to limit competition and give certain companies an unfair competitive advantage in the market.
Why is price fixing unconstitutional?
Price fixing is unconstitutional because it violates the antitrust laws that the United States has in place to protect consumers from unfair market practices. Price fixing occurs when companies conspire to set prices for products and services at a certain level to create an artificial monopoly.
This means that consumers have fewer suppliers to choose from and have to pay a higher price for the product. When companies collude to fix prices, it also prevents competition and innovation in the industry, leaving customers with fewer choices and with products of lower quality.
Additionally, it stifles competition in the market, allowing these companies to form a stronghold and essentially control the pricing. This kind of corporate action can lead to the suppression of smaller businesses within the industry, which can lead to massive job losses and business failure.
Finally, price fixing affects consumers by taking away their freedom of choice, allowing companies to make higher profits while they are left with few alternatives.
When did vertical integration become illegal?
Vertical integration – the combination of two or more stages of production previously operated by independent companies – was made illegal under the U. S. antitrust laws in the early 1900s. The goal of the Sherman Antitrust Act of 1890, which was the first major antitrust law, was to prevent businesses from forming monopolies or trusts and thereby reducing competition.
A result of this act is that it made vertical integration illegal. By limiting companies from owning several stages in a production system, it aimed to prevent them from dominating certain markets and restricting competition, as well as reducing prices for consumers.
The same intent was continued with the passage of the Clayton Antitrust Act in 1914, which prohibited certain forms of business mergers and acquisitions. Thus, vertical integration was made illegal in the early 1900s in order to maintain a competitive market and protect consumers.
Is price fixing a horizontal restraint?
Yes, price fixing is a type of horizontal restraint. This is when multiple firms at the same level of production or distribution agree to set their prices at a certain level. This type of conduct is illegal according to most competition laws, as it eliminates competition between the firms that participate and harms consumers.
For example, if two sellers of a certain product agree to sell the product at a certain price, they effectively prevent other potential competitors from being able to enter the market, as they know they will not be able to compete with the agreed-to price.
This increases prices and reduces consumer welfare.
What does horizontal mean in economics?
In economics, the term horizontal refers to a situation in which two or more entities are engaged in the same activity or level of production. This means that these entities typically produce or trade the same product or service, or employ the same level of technology, resources, and labor.
Horizontal competition occurs when there are many firms in the market all offering a similar product or service and competing for the same customers or clients. These competitors often find themselves in a zero-sum game which pits them against each other for resources, pricing structures, and market share.
The goal of horizontal competition is to drive down the costs of production and offer customers the best possible quality at the lowest price. This competition often leads to the consolidation of firms, as larger companies look to acquire smaller ones with the same product in order to gain an edge over their competition.
