One element of my income involves selling merchandise online, in marketplaces such as Ebay and Amazon.
I use software that will, several times per day, adjust the prices of my inventory in order to follow changes in the fair market value of my inventory.
This saves a substantial amount of time and effort, and if configured properly has only a small downside.
One configuration option provides me the ability to exclude any number of competitors from price matching; if I don’t want to compete with Crazy Eddy’s Midnight Vinyl Flooring And Carpet Liquidation pricing, I can just ignore him.
One of my competitors, who watches my prices enough to realize that I’m using ‘repricing’ software, contacted me via email and asked if I would be willing to ignore his prices in exchange for my ignoring his prices.
If I said yes, we would still be repricing our inventories to follow the market, but we would no longer engage in price wars between us.
Before answering, note that I’m asking if what HE did was legal.
Due to the overall level of competition in my market space, I won’t be excluding this guy from my pricing calculations; the competition is numerous enough that it wouldn’t be worth the effort, and there are macro effects to high prices that I don’t like to get into either.
To wit, high prices decrease sales, regardless of what the competition does, as consumers can choose different products if a given product is sold at too high of a premium.
As a result, I’m not asking for legal advice on what to do, nor ethical commentary on what I’m doing; I know what I’m doing.
I’m just idly curious as to whether or not one of my competitors just broke any laws.
We don’t know what jurisdiction you or he are in, so the legal question is unanswerable. But ethically, I’d say he was sure sailing close to the wind; it was certainly an attempt at collusion, albeit of a very minor nature and in essence no consumer impact.
Wait. There are laws saying two people selling goods can’t talk to each other and agree to set prices a certain way?
So if I own a gas station, and the owner of the one across the street comes to me and we agree not to engage in a price war with each other, that is against the law in some places?
My company puts me through pretty deep ethics and anti-trust/anti-competitive training every year (even though I’ve been out of direct sales for 5 years now). I’m fairly sure the request Mr. Slant describes would be seen as an attempt at collusion, at least in the US.
Any direct information exchange between competitors which leads to a change in pricing to the public is usually a no-no - even if pricing to the consumer goes down, since this could be seen as an attempt to drive competitors with smaller operating margins out of the market.
Gary, you understand correctly.
I lock his name out in my version of Skynet, he locks my name out in his version of Skynet, and then we get back to other concerns.
In many jurisdictions, yes. In mine (Sydney, Australia), yes. It’s called price fixing, and it contravenes the Competition and Consumer Act 2010 (Formerly the Trade Practices Act 1974.) It appears to be in the US as well under the Sherman Act, but someone more knowledgeable than me can talk to that.
In your first question, the answer is yes, that is strictly illegal.
In your second question, that is also illegal. Depends on what you mean by not ‘engaging in a price war’. If you agree that you will not drop your prices if the other guy does not drop his, then that is strictly illegal because it’s anti-competitive. It’s also quite a problem with petrol stations specifically in Australia (we all know what day to get cheap petrol, for example.)
I understand that the powers that be take a broad view of price fixing. For example, I participate in an internet-based network of auto repair professionals, and the rules prohibit any mention of prices so as to avoid any possibility of running afoul of the law here. Simply saying “I charge $X for an oil change” will get a post yanked from a discussion forum.
What I’m not yet grasping is how the particular arrangement mentioned in the OP falls in the category of price fixing. It seems to me that agreeing to IGNORE a competitor’s pricing is a step AWAY from price fixing, not a step towards it. Am I missing something?
I see that point in general, but in this specific case they put effort into watching OTHER competitors to keep their prices in line with market trends. Presumably it would be the same result if they didn’t know each other existed. Does that make a difference, or is it still a violation?
Okay, this may answer my latest question to ladyfoxfyre. It goes back to the very broad view I mentioned earlier, where anything that looks like it COULD be a problem is indeed considered a problem.
I think it does make a difference, because they DO know the other one exists. It would be like if Target and Walmart both consider eachother their main competitors, then agree to price match only non-Target or non-Walmart stores. No other store is likely to be able to drop prices below what Target and Walmart sell at and not sell at a loss, so the two stores are agreeing to keep prices higher than they normally would if they were actually engaging in competitive practices. Whether they have determined to “ignore” the other party or “not set a price below X”, it’s the same thing.