Price Fixing Case Study

806 Words4 Pages
Europe’s top truck manufacturer have been fined €2.93 billion for price fixing. The decision from the European commission had further opened doors for damage claims and adding more. The truck cartel’s price fixing has led to questiond as to how far is the extent of such activities on both suppliers and buyers. Answers to these questions has to use the supply and demand model. This will demonstrate the effects of price fixing. The overall question as such would be: how does price fixing affect a market’s supply and demand? This paper assumes that the reader has some knowledge of the supply-and-demand model, (specifically the difference between a movement shift) and how this affects market equilibrium. First, this paper will discuss cartelization and the conditions required to form a cartel. It will then closely examine price fixing and its effects on consumer behavior and firm’s output. Second, this paper will examine a case where trucking companies colluded to price fix and the actions taken by the EU commission. Finally, we would draw a conclusion to answer our purpose statement, of how does price fixing affect a free market. Body: Companies: MAN, Volvo/Rnault, Diamler,…show more content…
A cartel would invoke scenario 2 with 2 situations. One situation, is that the producers can use the decreased price as a justification for decreased quality. Second situation, the cartel feels encroached with competition and uses predatory pricing tactics to dissuade competition. Both situations ultimately have the same effect on the supply-demand model but have different intentions. The supply-demand model illustrated in figure 2 below shows how consumer are motivated to buy good due to the decreased price and how firms are unable to satisfy the demand. The shortage could be explain due in part to a decreasing returns to scale. In simpler word corporations are not receiving enough compensation whether perceived or

More about Price Fixing Case Study

Open Document