I'm currently reading Kurt Eichenwald's The Informant (the one that was made into that Matt Damon movie). It is about the Archer Daniels Midland price fixing scandal from the 1990s.
While the first 3rd of the book has been really enjoyable, Eichenwald's infrequent, timid forays into economic reasoning are mediocre at best, supplying the reader with only the most conventional of wisdom (he used the term "unfettered capitalism"; need I say more?). The book is mostly focused on the interplay between the informant, Mark Whitacre, and the FBI agents involved in the investigation to catch the agricultural giant ADM in its consipiracy with its competitors to "rob" the customers of the world, but it obviously has as its ideological underpinning the idea (completely taken for granted by the author) that price fixing is a crime.
I believe that, absent fraud or force, companies, even competing ones, should be able to set prices however they choose, and that "price fixing" is as ambiguous a charge as any other that falls under the Sherman Antitrust Act. However, I feel a little shaky arguing this subject.
What do you all think?
Other posts answered the OP nicely. I just wanted to add one more angle. Like most other socialist fallacies, the common perception about "price fixing" also stems from objectivity of values. There is presumably an objective value (price) of X (mostly related to labor theory of value) which greedy capitalists (through marketing, lying, cheating, blackmail, or collusion) sell for Y(>X) which is how profit gets created. Therefore, we need the good government to somehow control this "unfettered" profit creation and protect the gullible customers and exploited workers from the unsatiable capitalists' greed.
Once a socialist is taught about the subjectivity of values and the inherent wealth creation power of each and every voluntary exchange (both sides are better off), there is no looking back.
What is the argument that you're having trouble debunking? As in, what specifically is the reasoning that you think people should not be able to sell for whatever price they want?
If I decide to raise the price of my $.99 piece of gum to $5. What property is being damaged?
What if I meet with the owners of every store in a given area and raise this gum to $5? What property is damaged?
When there is collusion between businesses (or a cartel) to try to raise prices, the more incentive there is for an outside competitor to enter the market and undercut you, or for someone to break out of the cartel and undercut their competitors. The only way this can be somewhat successful is if they have the backing of the state in order to crush any outside competitors from entering the market.
Edit: There is a lot on this topic on Mises, just look up "Collusion", "Monopoly", "Cartel", "Price Fixing". My favorite find is this gem:
http://blog.mises.org/11598/refusal-to-price-fix-price-fixing/
This is also be a relevant speech (especially Walter Block's amazing joke right in the first few minutes):
http://mises.org/media/3976/An-Austrian-View-on-Monopoly-and-Antitrust-Law
The reasoning given by the author (a journalist), seems to be pretty much what I expect from the man on the street:
The way capitalism is supposed to work is that competing firms drive down price, benefiting consumers. However, if these firms wise up and decide to raise their prices and reduce output, then the consumers are robbed of the price they would be able to obtain in a free market. Thus, we have an FBI division devoted to this and other acts of "economic conspiracy."
The whole "defending the free market" thing is all the more laughable because the author had just (within the previous 50 pages or so) finished outlining all the various subsidies, sweetheart deals, tax breaks, and favorable treatment due to campaign financing ADM enjoyed as a corn processing company.
I guess I wouldn't necessarily say I have trouble debunking it. In my mind it seems pretty clear. I was just eager to hear some of you guys' input, especially since the subject is fresh in my mind
@Tex Thanks for the resources. That's what I have in mind.
Stephen Adkins:However, if these firms wise up and decide to raise their prices and reduce output, then the consumers are robbed of the price they would be able to obtain in a free market.
But it is impossible to know what "price you would have obtained on the free market." As mentioned in my previous post, the more and more profits gained from this "collusion," the more and more incentive there is to break undercut the cartel. It is unsustainable.
Stephen Adkins:In my mind it seems pretty clear. I was just eager to hear some of you guys' input, especially since the subject is fresh in my mind
Collusion can be debunked by just learning some basic economics (prices tending towards equilibrium) and doing some thought experiments (as my gum example). Then you just have to see that the only possible way it is possible is with government involment. Thus the problem with collusion is not with the "free market", but a problem with the state meddling in the market process.
Also, it's funny - I think the textbook answer as regards the market mechanism to break up these potential cartels (to the extent that they might "need" to be broken up) is the inevitable temptation on the part of each conspiring firm to undercut the other(s) and gain a larger share of the market. I'm sure Eichenwald wasn't trying to undercut his own position, but large portions of the book describe competing firms' (especially from Asian countries) unwillingness to "play by the rules". Yet of course this point is glossed over.
One of the FBI agents on the case to this day regards the mole from the company as a national hero for his efforts in putting an end to this heinous crime.
A little more on ADM and government intervention. From a 1995 CATO paper:
The Archer Daniels Midland Corporation (ADM) has been the most prominent recipient of corporate welfare in recent U.S. history. ...Thanks to federal protection of the domestic sugar industry, ethanol subsidies, subsidized grain exports, and various other programs, ADM has cost the American economy billions of dollars since 1980 and has indirectly cost Americans tens of billions of dollars in higher prices and higher taxes over that same period. At least 43 percent of ADM's annual profits are from products heavily subsidized or protected by the American government. Moreover, every $1 of profits earned by ADM's corn sweetener operation costs consumers $10, and every $1 of profits earned by its ethanol operation costs taxpayers $30.
If the goal is to have a market with many more, smaller companies 'honestly' competing, the solution is to roll back government, not create more laws to address problems created by previous laws.
Monopoly and Competition (by Murray N. Rothbard)
Stephen Adkins:The way capitalism is supposed to work is that competing firms drive down price, benefiting consumers. However, if these firms wise up and decide to raise their prices and reduce output, then the consumers are robbed of the price they would be able to obtain in a free market. Thus, we have an FBI division devoted to this and other acts of "economic conspiracy."
That's like saying that, if I bought a house for $100,000, but later can only sell it for $75,000, I was somehow robbed of $25,000. How does that follow?
To be honest, I've lately been shying away from using the word "market" because it implies these nice, tidy, independent "silos" of economic activity. In reality, however, it's all interconnected. Substitutes and complements abound. Any price-fixing or other collusion will have economic effects outside of their specific "market". This makes it all the more difficult to sustain a collusive agreement.
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
Price fixing is illegal because it results in a loss of Pareto efficiency due to a deadweight loss. That is the most precise answer you will ever get.
claudius:Price fixing is illegal because it results in a loss of Pareto efficiency due to a deadweight loss. That is the most precise answer you will ever get.
...Too bad it's a false one.
With that sort of objectivity, who could complain?
Isn't Pareto Efficiency an unscientific theory?