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ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business

Three leading manufacturers of cement in a country secretly agree to fix a common minimum selling price and not to undercut each other. How is this behaviour best described under competition law?

This is a cartel. Competing firms secretly agreeing to fix prices and avoid undercutting each other is collusion, which competition law generally prohibits because it removes price competition and harms consumers.

  1. AA cartel, which is generally prohibitedCorrect
  2. BA vertical integration, which is always permitted
  3. CA merger, requiring only shareholder approval
  4. DA franchise arrangement, which is encouraged

Explanation

Competitors secretly agreeing prices is price fixing by a cartel (collusion), which competition law generally prohibits. Vertical integration involves ownership along a supply chain, not agreements between rivals. It is not a merger or franchise.

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