What is the difference between price-fixing and predatory pricing? How do governments discourage firms from engaging in such practices?
What will be an ideal response?
Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise, price collusion is suspected. Price-fixing is illegal per se — that is, the government does not accept any excuses for price-fixing. As such, companies found guilty of these practices can receive heavy fines. Recently, governments at the state and national levels have been aggressively enforcing price-fixing regulations in industries ranging from gasoline, insurance, and concrete to credit cards, CDs, computer chips, and e-books. Price-fixing is also prohibited in many international markets.
Sellers are also prohibited from using predatory pricing — selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business. This protects small sellers from larger ones that might sell items below cost temporarily or in a specific locale to drive them out of business.
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