Questions & Answers: Rules of the Marketplace
Isaac: So educational… so enriching!
Emily: Are you being sarcastic?
Isaac: No! I really learned a lot.
Emily: Do you think they could have gone into more detail, though?
Emily: Yeah, like about what kinds of practices are illegal now that the Antitrust laws are in place.
Isaac: Pshh… we already know all that stuff.
Emily: I already know all that stuff. But some people might not, and I bet you don't even know half of it.
Isaac: We'll see about that. (to user) Ok, kid—quiz me!
What's a monopoly?
Isaac: That one's easy!
Emily: We're not talking about the board game.
Isaac: I know… a monopoly is when one company has control over an entire market—like the trusts did over steel and oil. It's only illegal when a company gets that power by being unreasonable and preventing competition, rather than gaining it simply by having better products or services than their competition. You can't, say, sabotage your competitor's store—but, if you sell better stuff at better prices than that store, and they go out of business, then that's fair enough.
Emily: I'm impressed.
What's price fixing?
Isaac: Price fixing is when someone fixes a price.
Emily: How profound. Price fixing is when competing sellers agree to sell their products at certain prices to reduce competition or freeze out another competitor.
Isaac: Yeah, that's what I said.
Emily: (rolls eyes) Companies can get in some serious trouble when they agree on what to charge. Fines, probation, even jail. It's no joke. One time, these three shoe-making companies all got together to set prices—and, don't you know, prices went up. They wanted to make sure that only their companies got all the business from shoe stores—but they got caught and ended up paying some hefty fines! I'm telling ya, price fixing is serious business.
What's bid rigging?
Isaac: Ok, that one I have no idea about.
Emily: Listen to this: Say the city was looking to hire a construction company to build a bridge. If each of the construction companies trying to win the job offered pretty much the same level of service, experience, and quality, they'd be competing mainly on price—whoever said they'd do the job for cheaper would win. Bid rigging is when companies agree to take turns letting each other win jobs. If they did that, they wouldn't have to try to beat each other's prices, and could charge a lot more—which just messes with fair competition. It doesn't happen very often, but when it does, someone could end up in jail.
Isaac: Hmm. Now we know.
What are supply restrictions?
Isaac: Piece of cake. That's when competitors agree with each other to sell fewer products. Doing that creates a shortage and drives up prices.
Emily: You got it.
What are customer allocation agreements?
Isaac: I actually know this one, too. It's when competitors agree with each other to divide up customers, maybe by geographic area. "You take all the customers east of the Mississippi, I'll take those west of the Mississippi."
Emily: Yeah, that's pretty much it. Again, agreements like that one that reduce or eliminate competition are illegal, and they carry heavy fines and possible jail time for the business owners who use them.
So are you guys dating or what?
Emily: No. No, no, no, no, no, no… NO.
Isaac: This is awkward.