Question

Describe price fixing and supply manipulation in its many forms

Answer 1

Price fixing- price fixing means a fixed price of a commodity is set by two or more sellers or companies who are selling same commodity, to increase their profit.

• Price fixing is maintained by controlling supply and demand of a commodity.
• Seller or companies fix prices rather than free market-forces.
• The aim of price fixing is to increase profit margin of sellers by coordination among them.
• Prices are set as high as possible by seller..

The main forms of price fixing are:

Vertical price fixing: vertical price fixing occurs between different levels from production to distribution of a commodity. For example: producer/manufacturers – retailers – wholesalers decide to fix the price of a commodity

Horizontal price fixing: means price fixing between competitors or sellers in the market. It is done at the same level.

The price fixing is done in these forms by different types of agreements such as: cartel, collusion etc.

         Supply manipulation in its many forms: supply manipulation means influencing supply of a commodity. Supply manipulation is done by sellers or producers in the market for their benefits. It is done by various forms of price fixing as follows:

• Reducing the supply of commodity in the market.
• Limiting production: firms agreeing to limit the production of a commodity in the oligopoly market.
• Creating artificial shortage of supply of commodity by sellers.

etc. are the ways through which companies or sellers influence the supply of commodity in the market to earn profit and remove competition from the market.

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