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Price fixing is when competitors adjust the price of their products or services to make a new price the marketplace norm.
Real estate professionals who take part in price fixing agreements are forced to pay millions of dollars or even spend time in jail.
Here are the chapters for this video. Feel free to jump around accordingly:
0:00 Introduction
0:22 What Is the Price Fixing?
1:09 Vertical Price Fixing
2:04 Horizontal Price Fixing
2:41 Price Fixing in Real Estate
3:20 Why Price Fixing is Illegal
4:00 Penalties for Price Fixing
4:18 Price Fixing Examples
5:10 Why Price Fixing Exists and How to Avoid It
6:08 What is NOT Price Fixing
6:40 What Do You Need to Know for the Exam?
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0:00
price fixing is when competitors adjust
0:02
their prices of products or services to
0:04
make a new price the marketplace Norm
0:06
real estate professionals who take part
0:08
in price fixing Agreements are forced to
0:11
pay millions of dollars or even spend
0:13
time in jail hello everybody Zach here
0:15
from real estate license wizard.com
0:16
today we're talking about price fixing
0:18
let's get started so what is price
0:20
fixing well price fixing is the practice
0:22
of setting the price of a good or
0:24
service to make a specific price a
0:27
standard when competitors conspire to
0:29
change their prices at the same time or
0:32
maintain the current price to manipulate
0:34
supply and demand this is price fixing
0:37
any agreement even if implied with other
0:40
brokerages to set a standard commission
0:42
rate violates Anti-Trust law but it's
0:45
important to note that price fixing
0:47
relates more than just the prices
0:48
themselves the Federal Trade Commission
0:51
tells us it can involve credit terms
0:53
shipping fees warranties discount
0:55
programs and financing rates there's two
0:58
types of priced schemes that compromise
1:01
a free and fair housing market they
1:04
include one vertical price fixing and
1:06
two horizontal price fixing so one what
1:09
is vertical price fixing well vertical
1:11
price fixing is when members within a
1:13
supply chain agree to raise lower or
1:16
fixed prices to create a standard a
1:19
company setting a minimum resale price
1:21
increases costs and lowers consumer
1:23
demand when a company sets a maximum
1:26
price this reduces cost by increasing
1:28
consumer demand while vertical price
1:31
fixing is illegal in all cases courts
1:34
are generally more flexible with maximum
1:36
price fixing whereas they come down much
1:39
harder on minimum price fixing so let's
1:42
do an example of that of vertical price
1:43
fixing if a manufacturer forces
1:46
retailers to sell their product at a
1:48
certain race price with no discounts
1:51
this is an example of vertical price
1:53
fixing why well the supply chain members
1:56
determined that they would fix the price
1:58
to ensure maximum profit it for the
2:00
company and increase the market price of
2:02
the good so what is horizontal price
2:05
fixing well horizontal price fixing is
2:07
when Market competitors agreed to raise
2:10
lower or fix prices to create a standard
2:12
the aim of horizontal price fixing is
2:15
typically to increase consumer prices by
2:18
making a new higher price the norm so
2:20
let's do an example of that if every
2:23
competing tire shop within a region
2:25
raised their rates by 10 percent this
2:28
would be an example of horizontal price
2:30
fixing because all tire shops now offer
2:33
the same higher price there is no
2:35
competition creating a new standard rate
2:37
and forcing consumers to pay more for
2:40
their tires so now you may think okay
2:43
well what does price fixing look like in
2:45
the real estate World well that's a
2:46
great question one example would be if
2:48
competing real estate firms met up and
2:51
agreed to set standard prices for their
2:53
services and commission rates this
2:55
particular price fixing scheme is an
2:57
example of horizontal price fixing as
2:59
it's happening across the entire Market
3:01
another example would be if Brokers
3:03
within a real estate firm agreed to
3:05
adjust their prices to create a new
3:07
standard this would be an example of a
3:09
vertical price fixing as it takes place
3:12
within one supply chain instead of the
3:14
general Marketplace so why is price
3:17
fixing illegal well there are two main
3:18
reasons that price fixing Agreements are
3:21
against the law and one it's because you
3:24
know essentially it eliminates Fair
3:25
competition and two it raises prices for
3:28
consumers competition is essential in a
3:30
free Marketplace if consumers only have
3:33
one option regarding Real Estate
3:34
Services this gives the real estate
3:36
company all the market power this is an
3:39
issue because the company can charge
3:40
significantly higher prices and
3:42
consumers have no choice but to pay but
3:45
thanks to government interference back
3:46
in the day the United States operates
3:48
under antitrust laws now theoretically
3:51
that means that these Anti-Trust laws
3:53
benefit consumers and give them back the
3:55
power but obviously that's not always
3:57
the case so what are the penalties then
3:59
for or price fixing according to the FTC
4:02
real estate professionals engaging in
4:04
price fixing can be fined up to one
4:06
million dollars and spent up to 10 years
4:07
in prison real estate companies
4:09
participating in house market price
4:12
fixing schemes can be fined up to 100
4:14
million dollars or twice the gain or
4:16
lost from their violation so let's do
4:19
some famous examples I'm sure you guys
4:21
have heard of Tyson Food you know the
4:23
food company specializing in poultry
4:25
well this big business engaged in a
4:28
price fixing scheme and had to pay 10.5
4:30
million dollars they're guilty of price
4:33
fixing and rigging contracts Tyson's
4:36
food is a clear example of why it's
4:37
crucial to follow antitrust law now
4:40
there was also a DVD and Blu-ray disc
4:42
price fixing case two individuals and
4:45
four companies selling DVDs and Blu-rays
4:47
on Amazon were recently caught engaging
4:50
in price fixing conspiracies while it's
4:52
still an ongoing investigation law
4:54
enforcement has clarified that they will
4:55
persecute the perpetrators and uphold
4:57
antitrust law so in our case if you're
4:59
wondering if these laws are still being
5:01
properly enforced the answer is a
5:03
resounding yes now that we all know the
5:05
risks of price fixing agreements you may
5:07
wonder why would any company partake in
5:09
price fixing if it's illegal that you
5:11
get fined millions of dollars and even
5:13
potentially spend time in jail well
5:16
there are a few reasons that companies
5:18
uh would typically do this maybe if the
5:21
Market's crowded maybe it has a bad
5:22
company culture maybe they just have a
5:25
decentralized price setting mechanism in
5:28
these cases it's important for
5:30
management to step up in price fixing
5:32
prone Industries and instruct their
5:34
employees not to engage in
5:36
anti-competitive practices there are a
5:38
few telltale signs to look for including
5:41
competitors have identical prices for an
5:44
extended period of time competitors
5:46
announce price increases at the same
5:48
time a company's prices have increased
5:51
or they never drop or maybe even higher
5:54
prices make no sense considering the raw
5:57
cost of materials or services now while
5:59
well none of these examples guarantee
6:02
that illegal price fixing is happening
6:04
they indicate that it may be time for an
6:06
investigation by the FTC now you may
6:09
have noticed in the past that every
6:10
coffee shop in your area raised its
6:13
price at the same time and then you
6:14
might think okay well is that price
6:16
fixing well the coffee industry may just
6:18
be responding to changing market
6:20
conditions and making price changes
6:22
accordingly for example if a war or
6:24
pandemic is making it more difficult for
6:27
the United States to access coffee beans
6:29
than the price of coffee will inflate
6:31
coffee shop owners need to raise their
6:33
prices to account for this and change
6:35
and maintain a profitable business so
6:37
that obviously would not be price fixing
6:40
so what do you need to know for the real
6:41
estate exam well price fixing is a vital
6:43
concept understand before going into
6:45
your real estate exam remember price
6:48
fixing is the practice of setting the
6:49
price of good or service to make a
6:51
specific price a standard this illegal
6:54
business practice is best for Real
6:56
Estate professionals to avoid as it
6:58
compromises a free competitive real
7:01
estate market now that you have a better
7:03
understanding of price fixing click here
7:05
for more Anti-Trust law violations video
7:07
and click here to subscribe thank you so
7:09
much for watching catch you guys next
7:11
time bye
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