Price Fixing: Speak Up or Pay Up

Sometimes saving pennies means more than cutting costs on expenses. Sometimes it needs us all to speak up about unfair pricing and business practices.

Price fixing is when competitors collude to fix prices at a level that sabotages the principles of a free market economy and it is illegal.

Where there is a free market, supply and demand are the factors which drive the final cost to the customer. Competition between sellers tends to drive prices down and quality up as each tries to attract the most buyers. Where the sellers conspire to artificially inflate prices the end customer loses the ability to ‘vote with his feet’ and is stuck with whatever prices the conspirators have settled upon. This has a huge impact on the consumer as it affects every aspect of his life from airline prices to the cost of tomatoes.

Airline Price Fixing

The Justice Department issued a statement in 1994  boasting:

Six of the nation’s largest airlines agreed today to changes in a price information system that was used to increase the cost of airplane tickets by perhaps more than a billion dollars between 1988 and 1992. Earlier, two other airlines settled the case filed by the Justice Department’s Antitrust Division.

Today’s settlement involves American Airlines, Delta, Northwest, Continental, Trans World Airlines, Alaska Airlines, and a computerized fare information system owned by the airlines, the Airline Tariff Publishing Company, known as ATP.

Two other participants, United Air Lines and USAir, entered into a consent decree in December 1992, after the Justice Department filed a suit against the eight major carriers for using the information system to conduct a detailed electronic dialogue to raise prices and eliminate discounts.

Oh, that’s okay then. A slap on the wrist and back to business. It would be nice to believe that the airlines all learned a lesson and decided to play fair, wouldn’t it? Not so. In the summer of 2006, British and American regulators were called in to investigate after maverick tycoon Richard Branson blew the whistle on an alleged  price fixing scam that involved his own Virgin Atlantic as well as British Airways, United Airlines, and American Airlines.

Also in 2006 KLM, Cathay Pacific, Air France, Martinair and SAS all pled guilty to fixing prices of air cargo rates paying between them fines totaling $504 mil. Earlier this year, Japan Airlines pled guilty to price fixing and accepted a $110 mil criminal fine while currently European investigators have invaded the offices of Lufthansa and Alitalia to gather evidence for their latest price fixing probe.

Looking into airline price fixing it is actually rather hard to come up with one majr international operator who has not been involved in a price fixing investigation at some point over the last decade. So, despite the efforts of the Justice Department and various worthy European bodies it would seem that the suspicion of price fixing in the airline industry is sticking around like a bad smell and is not going away anytime soon.

It is not only big ticket items that the big boys peg prices on. On 20th September 2007, the UK’s top 5 supermarket chains, Tesco, Sainsbury’s, WM Morrison, Safeway and Asda were accused of price fixing with a potential loss to the consumer of GBP270 million over a two year period. By December that year, Sainsbury’s and Asda had agreed to pay fines of GBP116 mil after admitting fixing prices on butter, milk and cheese.

The other supermarkets involved dug their heels in and went to court. The case is not yet resolved although today Britain’s Daily Mail reported that the supermarkets may face fines of up to GBP300 mil and the average man in the street certainly seems to be in no doubt that the supermarkets are implicated as there has been an overwhelming move to cheaper, non-store brand products and to discount stores Aldi and Lidl,

The latest price fixing investigations in the US involve such everyday products as tomatoes and eggs. If this disease runs through the system from airline prices to the humble breakfast egg you can imagine the impact paying inflated prices is having on your bank account in the space of one year.

So what can you do about it?

Speak up. Price fixing is illegal. You can contact the Office of Fair Trade in the UK or the Antitrust Division of the Department of Justice in the US if you suspect that suppliers are conspiring to fix prices. Here, according to an Antitrust pamphlet by the Department of Justice are some tell-tale signs to watch for:

• any evidence that two or more competing sellers of similar products have agreed to price their products a certain way, to sell only a certain amount of their product or to sell only in certain areas or to certain customers;
• large price changes involving more than one seller of very similar products of different brands, particularly if the price changes are of an equal amount and occur at about the same time;
• suspicious statements from a seller suggesting that only one firm can sell to a particular customer or type of customer;
• fewer competitors than normal submit bids on a project;
• competitors submit identical bids;
• the same company repeatedly has been the low bidder on contracts for a certain product or service or in a particular area;
• bidders seem to win bids on a fixed rotation;
• there is an unusual and unexplainable large dollar difference between the winning bid and all other bids; or
• the same bidder bids substantially higher on some bids than on others, and there is no logical cost reason to explain the difference.