Problems of collusive pricing in the US food manufacturing industry

Introduction

Collusive pricing occurs when two or more rivals from different firms consult each other on prices. The objective of price agreement between two entities results in chasing out competitors not included in the price agreements. The authority to set a price at a certain level can be either fair or exorbitant. This paper will examine challenges that come with collusive pricing in the US food market, types of collusive pricing and characteristics of collusive pricing within the food market.

Types of collusive pricing

Collusive pricing can take place in many forms within the food industry sector. One of the most common ways of collusive pricing is price fixing. This is brought about when several firms in the food industry integrate to form what is known as oligopoly. The oligopoly decides on the overall price of the food   products (Lauck, 2000). Another form of collusive pricing occurs when firms come together and set maximum prices for items that they buy. Firms collude to get rid of competition or reduce their number significantly. A new competitor may not want to be part of a collusion deal. Thus, other competitors may try to buy them out or block significant suppliers. Lastly, collusive can occur when two firms decide to limit consumer understanding on the price about a food item by advertising the particular product together. Consequently, it prevents comparing of values. For instance, exchanging of information    occurs when food manufacturers give out foodstuffs to a school based on terms and conditions of another previous food manufacturer (American Bar Association, 2008). 

Indicators of collusive food pricing

Uniform pricing is one of the signs of collusive pricing. Uniform pricing is not coincidental but intentional and is one of the sure ways of sighting collusive prices. Moreover, the cost of a product cannot be similar across the board. Hence, when a consumer sports uniform pricing in various shops and supermarkets, it is a sure indicator. The second indicator is an original notice before altering a price (Connor, 2007). Usually, changing price takes time and firms have to consider some facts before settling down on a certain amount. Pricing is carefully done, and a firm thinks the market dynamics before settling on a decision, unconventional notices shows consultations with other competitors in the food industry. Also, advanced warnings show power and control that can only come into play with collusive prices with a third party. Exchange of data among firms facilitates collusive prices. Information exchange can generate prices based on the information given. Similarly, information and contain certain pricing aspects to know when to reduce, offer a discount and to increase prices of food products within the food, market industry (Lauck, 2000).

Challenges that come with collusive pricing in the food sector

There is no shield against high prices. When two or more firms come together and form an oligopoly, they gain power and authority. The entities in the agreement regulate prices according to whatever suits them at that particular time. Firms may decide to raise the price and make maximum profits or generate an artificial scarcity within the market by hoarding food items and later sell the food products at an exorbitant price (Connor, 2007).

The absence of rivalry in the market. Collusive prices eliminate competition. Varying costs allow consumers to choose between different products according to prices and quality of product sold. A collusive price eradicates competition. Similarly, potential investors cannot venture into to the food industry due to the oligopoly cartels that would not give them a chance to co-existent and comes up with a new price (Lauck, 2000).

It compromises the quality of products that consumer get. Control and power that comes with collusive prices shape the manner in which firms carry out service delivery and implementation. In an attempt to attain maximum profits, some food industries may decide to deliver low quality and save on manufacturing expenses (Connor, 2007).

Elimination of an equal playing field within the food industry. Oligopolies formed as outcomes of allusive prices have an advantage over regulators. Regulators frequently confuse oligopolies with participants within competitive market while they are cartels. In effect, the regulators do not take action against the manipulating nature of the collusive prices. Thus,   the market remains at the mercy of few firms (American Bar Association, 2008).

The emergence of monopolies due to lack of competition. Monopolies may not cater to the needs of the consumers. These monopolies can act contrary to the interests of consumers by selling at high prices. Lack of innovation may lead to very few options for the consumer thus making market dull (American Bar Association, 2008).

Profits made by cartels during peak seasons may expand their hold, and control on the market. In a similar effect, during low peak seasons, the lot of stock may remain, and the market would sink due to the loss (Lauck, 2000).

 

 

Conclusion

In summary, collusive pricing comes about when two or more firms come together and agree on a particular price. These agreements eliminate any competition outside the contract. Less competition means high prices with fewer alternatives. There is a various form of collusive pricing but all have the same outcome, and that is the formation of cartels and total control of a market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Lauck, J. (2000). American agriculture and the problem of monopoly: The political economy of grain belt farming, 1953-1980. Lincoln: University of Nebraska Press.

American Bar Association. (2008). Mergers and acquisitions: Understanding the antitrust Issues. Chicacago: ABA.

Connor, J. M. (2007). Global price fixing. New York: Springer