Question

Identify the characteristics of price fixing. Discuss its impact on consumers

Answer 1

Price fixing occurs when two or more firms decide to keep a fixed price in order to maintain a profit margin. Price fixing is also practiced when two rival firms collude with each other and charge more price than the market equilibrium price in order to increase their profits.

Price fixing by two competitors leads to an increase in price in the market which leads to inflation in the economy as a result of which purchasing power of individuals falls as they can purchase fewer goods than before due to the increase in prices. It creates deadweight loss and the value of consumer surplus decreases.