What is price fixing?

Price fixing refers to the practice where competitors in a market agree upon the prices at which they will sell their products or services. This agreement can be explicit or implicit, and its primary goal is to control or stabilize market prices, often leading to higher prices for consumers and reduced competition.

When companies engage in price fixing, they eliminate the natural fluctuations of supply and demand. Normally, prices in a competitive market are determined by the actions of buyers and sellers; however, price fixing undermines this process. By collectively agreeing on pricing, companies can avoid competition, leading to a market environment that is not beneficial for consumers.

The other choices depict scenarios that do not effectively define price fixing. While the first choice suggests a strategy aimed at benefiting consumers, price fixing typically results in the opposite outcome. The third choice of a legal guideline for pricing misrepresents the nature of price fixing, as such agreements are often illegal and violate antitrust laws. Finally, the fourth option presents a method of determining unit price, which does not capture the essence of how price fixing specifically involves collusion among competitors concerning their pricing strategies.