ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business
Several competing manufacturers of cement in one country secretly agree to fix a common minimum selling price. How would competition authorities generally treat this?
Competition authorities generally treat secret price fixing between competitors as an illegal cartel. It removes price competition and harms customers. It is not a merger, and an agreed price being lower than before does not make the agreement lawful.
- AAs an illegal cartel, because it restricts competition and harms customersCorrect
- BAs a lawful merger, because the firms remain separate legal entities
- CAs acceptable market practice, provided the agreed price is below the previous market price
Explanation
Price fixing between competitors is a cartel, and competition law generally prohibits it because it removes price competition and raises prices for customers. It is not a merger, since no combination of businesses takes place. Setting a lower agreed price does not make the arrangement lawful.
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