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Cost Accounting: What is Price Fixing? 0 Views


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What is Price Fixing? Price fixing happens when competing companies try to set the price of their goods or services rather than allowing market forces (like demand) to determine the price. It’s illegal for private business but no law saying it’s illegal for the government to do, which they have in times of economic turmoil.

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Transcript

00:00

And finance Allah Shmoop what is price fixing up Okay

00:08

So why are we fixing prices anyway Like when did

00:12

they break Okay Yeah Old joke among collude er's And

00:15

that's pretty much what price fixing is It's collusion Like

00:19

in a given market There are three cellars of zombie

00:22

hosiery Extra thick stockings Teo you know keeping all the

00:26

goop and bones stuff What one specializes in the fall

00:30

line another the spring and another the summer But instead

00:33

of competing against each other such that a setup like

00:36

this lovely ensemble might fetch one hundred dollars at Zombie

00:40

Mart while they collude on pricing and all agreed and

00:43

never sell ho shary for less than two hundred dollars

00:46

per And zombies well have to buy it or you

00:48

know bad things happen All right Well the biggest price

00:51

fixer in the world OPEC These guys the Organization of

00:55

the Petroleum Exporting Countries the people who control oil price

00:59

fixing of oil in their countries is in fact legal

01:03

But not in the U S So how do we

01:05

police it or manage it Are what do we do

01:08

Just embrace Tesla's Yeah Hard to do on a global

01:11

scale Well airlines have price fixed in the past So

01:15

have computer chip manufacturing companies and well so have self

01:19

cleaning litter box companies And if you think about the

01:22

motivation to fix prices well it's big Three owners get

01:26

together in a bar and quietly opine on their low

01:29

profit margins You know the ones they're getting in their

01:31

existing business competing against each other The three of them

01:34

represent ninety two percent of all the sales in their

01:37

industry segment holiday You know solar powered roof tiles segment

01:42

at a dollar a tile They make a dime in

01:44

operating profit But if they all colluded and sold them

01:47

for a dollar forty instead of a dollar bill nobody

01:50

would really know the difference the costs or just passed

01:53

on to the idiot consumer who simply wants his refrigerator

01:56

to be powered by the great and powerful Sun God

01:59

But at a buck forty way higher than where supply

02:02

meets demand On this graph here Instead of operating profits

02:06

of a dime a tile they make like fifty cents

02:08

five times the profit number Is all that additional profit

02:12

worth the legal risk of colluding illegally in countries who

02:15

don't allow you to collude Is it worth the jail

02:17

time Well for some it is especially you know those 00:02:21.03 --> [endTime] who look good in orange

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