What does price fixing entail?

Price fixing refers to an agreement among competing firms to set the same price for their goods or services. This practice eliminates competition in the marketplace, as companies coordinate their prices rather than allowing the market to dictate them. In competitive markets, prices are typically determined by supply and demand, but price fixing undermines this natural market mechanism and can lead to higher prices for consumers.

This agreement can take various forms, including direct communication among firms or tacit understanding based on observing competitors’ pricing. Such practices are considered illegal in many jurisdictions, including under U.S. antitrust laws, because they restrain trade and lead to market manipulation.

The other options presented do not describe price fixing correctly. Setting prices below market value may be part of a competitive strategy, while charging different prices for the same goods can occur in markets with variables like customer segments, rather than an agreement among competitors. Offering discounts to specific customers also doesn't relate to price fixing, as such actions do not involve collusion among firms to set prices uniformly.