A price fixing scheme is an arrangement in which competing businesses set up a mechanism to fix prices of certain commodities in an effort to steer clear of price competitions. Price fixing is a criminal offence since it promotes unfair competition and the public is denied access to those commodities at reasonable prices. General Electric and other suppliers of heavy electrical equipment engaged in price fixing schemes until 1960. When General Electric withdrew from the price fixing schemes meeting, prices fell gradually upto a bottom low of between 45 to 50 percent from the book price. Therefore, the equilibrium price during the price fixing scheme could have been about 50 percent below the book price.
There are several conditions within General Electric and within the industry that encouraged the use of price fixing schemes. One of these conditions was the lack of a comprehensive antitrust policy within GE. GE required employees to signify in writing that they would comply with any antitrust laws and policies of the company. However, there was no provision that the letters be signed under oath neither were managers responsible to their superiors for adhering to that policy. Secondly, the pressure on GE managers to achieve corporate goals pushed them to adopt price fixing schemes. Clarence Burke, a sales manager at GE at that time, testified that the General Manager at the switch gear division constantly insisted on a budget that continuously increased the net profit to sales percentage over the years.
The heavy electrical equipment industry was dominated by only four players; General Electric, Westinghouse, Allis-Chalmers and Federal Pacific. With few players controlling the industry, it became easier to engage in price fixing schemes. Managers from the four companies met regularly and took turns in being the lowest bidder for upcoming contracts. The fear of cut throat competition that would result in massive price reduction in the industry and a reduction in their respective market shares also pushed players in the industry to engage in price fixing schemes.
Geis, G. (2006). White-collar criminal: the offender in business and the professions (illustrated ed.). New York: Transaction Publishers.
Schatz, R. W. (2005). The Electrical Workers: A History of Labor at General Electric and Westinghouse, 1923-60 (reprint ed.). Chicago: University of Illinois Press.