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High Prices – Price-Fixing, Price-Gouging or None of the Above?

In the June 10, 1921, edition of the Holt County (Missouri) Sentinel, a case of price fixing was printed in black and white: At the grain threshers association’s annual meeting, participants fixed wheat at 8 cents per bushel and oats at 6 cents per bushel. Evidence like the 100-year-old news article containing this surprising admission is rarely found today as business people are more aware of what behavior is allowed, and not allowed, under antitrust laws.

Price fixing, which is mostly barred by our antitrust laws, is the raising, lowering or stabilizing of prices or competitive terms (such as shipping fees, warranties, discount programs or financing rates) by agreement (written, verbal or inferred from conduct) between competitors. The competitors agree to buy or sell a product, service or commodity at a fixed price or maintain market conditions so that the price persists at a given level by controlling supply or demand.

When the term “laissez faire” is used in reference to the U.S. free-market economy, it usually refers to restricting government intervention in the economy. “Laissez faire” is French for “let do” or “leave us alone.” In other words, let the market do its own thing. But government intervention is not the only thing that can derail the workings of a market. Businesses can also do so, such as when competitors agree among themselves to limit supply, manipulate demand or set prices, instead of letting the market “do its own thing.”

Price-fixing schemes are usually plotted out in secret and are hard to uncover, but “circumstantial” evidence can point to such agreements. Any pact among competitors to fix prices is almost always illegal, whether prices are fixed at a minimum or within some range. Arguing that the prices were reasonable to consumers or were necessary to avoid cut-throat competition or to stimulate competition is no defense against charges of price fixing.

However, not all similar prices or simultaneous price changes are price fixing. There are situations that are part of normal market workings in which prices may be similar or move similarly. A prime example is gasoline prices.

All sellers’ gasoline is essentially the same product with a few formulary variants, meaning consumers can easily substitute one seller’s product for another seller’s product. The price per gallon is posted by the seller for easy viewing by all, including competitors. Often, when one seller raises or lowers its price and displays that change on its sign, competitors in the area will follow. This does not mean that the sellers have an agreement. If a price is the result of an independent business decision, as opposed to being the product of an agreement, such pricing behavior does not violate antitrust laws.

Furthermore, changes in consumer demand may drive market prices up or down en masse. Sticking with gasoline as an example, as drivers travel for a holiday or in the summer, demand for gas increases and stations can raise prices without negatively affecting how much gas they sell. Even though this price increase happens about the same time among stations, this does not trigger liability under antitrust laws. Remember, however, that if price changes come as the result of an agreement with other gas stations, as opposed to independent business decisions, they violate the law!

Simultaneous supply-and-demand-related changes in the price of necessities — such as gasoline but also food, bottled water and building supplies — also can result from a natural disaster or another disruption in supply chains. But does the fact that economic factors, rather than collusion, sparked price changes mean that no law has been violated? Not necessarily. While it is understandable that prices rise during a time of crisis, under some circumstances, increases can constitute unlawful price gouging. 

Price gouging occurs when a seller increases the prices of goods, services or commodities to a level much higher than is considered reasonable or fair. Such sellers take advantage of consumers. While Ohio does not have a statute that deals directly with price gouging, state law bans “unfair,” “deceptive” or “unconscionable” sales practices under O.R.C. 1345.02 and 1345.03, both part of Ohio’s Consumer Sales Practices Act.

A sale could be considered “unconscionable” if the business knew at the time that the price was excessively higher than normal or if the business dramatically increased the price of in-stock products solely in response to current events. Examples include the spike in gasoline prices on 9/11 and the exorbitant prices for N95 masks at the start of the COVID-19 pandemic.

Price fixing and price gouging are covered by two different sets of laws and handled by two different sections of the Attorney General’s Office, but they both likely constitute illegal business conduct, whether undertaken by an individual or a company. Ohioans who suspect either of these business practices should contact Ohio Attorney General Dave Yost or call 1-800-282-0515.