Are these two vendors illegally fixing prices?

August 26, 2019 7:38 PM

If one vendor starts charging for a service, and another does the same after communicating with the first, is that totes OK market research or illegal price fixing?

Vendor A and Vendor B provide a very specialized service to my company. Like - no other competitors within 100 miles, central to operating the business, 20-150k total contract per year between the two of them. Vendors work in the same building but have separate and confidential service contracts with my company.

For ten years certain extra services were provided by both vendors at no charge. Like, you are paying for thousands of dollars, no big deal if we also provide X hours of access to Y product. 6 months ago, Vendor A says no more free service of any kind, a nominal fee will be charged for every hour of extra service.

Then, Vendor B starts charging for the same extra service. One of Vendor B's employees says "We heard from Vendor A they started charging for it and also set a new rate to look out for our interests."

So - is this Price Fixing as the FTC calls it? Is it against the law, or just a pain?

posted by sol to Law & Government (10 answers total)

Coordinating between vendors and "[looking out] for our [competitor's] interests" is exactly what price fixing is. If a company tells their competitor the company is changing prices to make a better market for both the company and their competitor, they are engaging in price fixing.

It would be legal for Vendor B to hear from customers, or public contracts, that Vendor A is charging more, and then have Vendor B increase their prices correspondingly. It is not legal for Vendor A and B to signal to each other what they are doing to change the market in their favor.

Whether this is actionable or not for the FTC is a different question. I would be very surprised if the FTC gets involved over a relatively small market like you describe.
posted by saeculorum at 7:53 PM on August 26, 2019 [2 favorites]

In general, price fixing means an agreement between competitors, not just a decision by vendor b to start charging what vendor a is charging. Whether a price change is illegal will depend on the facts - for instance, if vendor b has no way of finding out what vendor a is charging, but vendor a tells vendor b its price and vendor b starts charging the same, that might imply an agreement because vendor a had no legitimate reason to share its price with vendor b.
posted by burden at 7:54 PM on August 26, 2019 [3 favorites]

Note too that victims of price fixing can bring their own lawsuits for damages, often treble damages, they don't need to wait for the DOJ to bring charges.
posted by burden at 7:58 PM on August 26, 2019 [1 favorite]

I think the interpolation that saeculorum is doing is incorrect - I think the employee of company B was saying "We heard they started charging, so why wouldn't we start, in order to not lose money they aren't?" - which, like Burden says in their first sentence, isn't collusion.
posted by sagc at 8:02 PM on August 26, 2019 [7 favorites]

This can be a very complicated area and there are not enough facts in your question to say one way or the other. You may be interested in the airline baggage fee price fixing class action. While it was eventually dismissed, the theory of the case was that AirTran used a public earnings call to hint to its competitor (Delta) that if Delta started imposing baggage fees, AirTran would follow suit.

You can always report a potential violation to DOJ.
posted by sallybrown at 8:12 PM on August 26, 2019 [2 favorites]

I think the employee of company B was saying "We heard they started charging, so why wouldn't we start, in order to not lose money they aren't?"

I see the two possible interpretations. I had read this as "We heard from Vendor A they started charging for it and that Vendor A was setting the new rate to look out for our interests." Re-reading this, I think the reading suggested by sagc is more plausible (as well as bagc's/burden's note that simply responding to pricing by other companies is not price fixing).
posted by saeculorum at 8:24 PM on August 26, 2019

If you’re asking if there’s anything actionable on this: maybe in legal theory but a hard no in reality. These cases are notoriously difficult to prosecute and the prices are so low they’d equal lawyer fees in several months. If you threaten the vendor with price fixing you’d expose yourself as being smalltime. You might get immediate gains but in the long term you’d set yourself up to being taken advantage of.
posted by geoff. at 9:38 PM on August 26, 2019

My employer has mandatory annual training to make every single employee, even those not in sales, understands things like this. More than anything, the situation you describe gives an appearance of price fixing, something we are trained to avoid as much as actual price fixing. We are told to walk away from conversations with competitors to avoid knowing information such as what they are charging for goods and services.

It's different if Company B heard from another one of their customers, or from another competitor on the street. The possible price fixing comes if Company B hears it from someone at Company A, and the content of the conversation where this information was transmitted. I'd think this would be grounds for an investigation at least. An FTC investigation is likely to hit the reputation of both companies, even if no wrongdoing is found.
posted by lhauser at 9:42 PM on August 26, 2019 [2 favorites]

What lhauser describes are self-imposed restrictions by a company to avoid the potential of a violation being claimed or, for that matter, to avoid having to deal with an investigation. Best practices are salutary but that does not mean that those who do not follow them are in fact violating the law. As the responses above have noted, there is a level of uncertainty and risk involved in these issues.
posted by megatherium at 4:23 AM on August 27, 2019

Best answer: In economics, the is a phenomenon called a leader-follower market. A typical example is banking where a price structure will remain static for a while. The one bank, the leader, will change rates. In the next week, all the other banks will make an evaluation. Some may follow, some not.

In your situation, you may have a legal leader-follower situation, or you may have illegal price-fixing. You only know which if you know the exact communications between the parties.
posted by SemiSalt at 7:55 AM on August 27, 2019 [4 favorites]