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Cost Accounting: What is Price Fixing? 0 Views
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Description:
What is Price Fixing? Price fixing happens when competing companies try to set the price of their goods or services rather than allowing market forces (like demand) to determine the price. It’s illegal for private business but no law saying it’s illegal for the government to do, which they have in times of economic turmoil.
Transcript
- 00:00
And finance Allah Shmoop what is price fixing up Okay
- 00:08
So why are we fixing prices anyway Like when did
- 00:12
they break Okay Yeah Old joke among collude er's And
- 00:15
that's pretty much what price fixing is It's collusion Like
- 00:19
in a given market There are three cellars of zombie
Full Transcript
- 00:22
hosiery Extra thick stockings Teo you know keeping all the
- 00:26
goop and bones stuff What one specializes in the fall
- 00:30
line another the spring and another the summer But instead
- 00:33
of competing against each other such that a setup like
- 00:36
this lovely ensemble might fetch one hundred dollars at Zombie
- 00:40
Mart while they collude on pricing and all agreed and
- 00:43
never sell ho shary for less than two hundred dollars
- 00:46
per And zombies well have to buy it or you
- 00:48
know bad things happen All right Well the biggest price
- 00:51
fixer in the world OPEC These guys the Organization of
- 00:55
the Petroleum Exporting Countries the people who control oil price
- 00:59
fixing of oil in their countries is in fact legal
- 01:03
But not in the U S So how do we
- 01:05
police it or manage it Are what do we do
- 01:08
Just embrace Tesla's Yeah Hard to do on a global
- 01:11
scale Well airlines have price fixed in the past So
- 01:15
have computer chip manufacturing companies and well so have self
- 01:19
cleaning litter box companies And if you think about the
- 01:22
motivation to fix prices well it's big Three owners get
- 01:26
together in a bar and quietly opine on their low
- 01:29
profit margins You know the ones they're getting in their
- 01:31
existing business competing against each other The three of them
- 01:34
represent ninety two percent of all the sales in their
- 01:37
industry segment holiday You know solar powered roof tiles segment
- 01:42
at a dollar a tile They make a dime in
- 01:44
operating profit But if they all colluded and sold them
- 01:47
for a dollar forty instead of a dollar bill nobody
- 01:50
would really know the difference the costs or just passed
- 01:53
on to the idiot consumer who simply wants his refrigerator
- 01:56
to be powered by the great and powerful Sun God
- 01:59
But at a buck forty way higher than where supply
- 02:02
meets demand On this graph here Instead of operating profits
- 02:06
of a dime a tile they make like fifty cents
- 02:08
five times the profit number Is all that additional profit
- 02:12
worth the legal risk of colluding illegally in countries who
- 02:15
don't allow you to collude Is it worth the jail
- 02:17
time Well for some it is especially you know those 00:02:21.03 --> [endTime] who look good in orange
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