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

Two rival cement producers secretly agree to fix their selling prices at the same level and not to undercut each other. How would competition law normally treat this arrangement?

Price fixing between competing producers is a cartel, a horizontal anti-competitive agreement. Competition law generally prohibits it and authorities can impose heavy fines, because it removes price competition and harms consumers. It is not a vertical agreement, natural monopoly or acceptable self-regulation.

  1. AAs a cartel, which is generally prohibited and may result in heavy finesCorrect
  2. BAs a legitimate vertical agreement between a supplier and a retailer
  3. CAs a natural monopoly that needs price regulation
  4. DAs an acceptable form of self-regulation by the industry

Explanation

Agreements between competitors to fix prices are horizontal agreements, known as cartels. Competition authorities treat them as among the most serious breaches and can impose large fines. The producers are rivals at the same level of the supply chain, so it is not a vertical agreement.

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