ShmoopTube

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

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

Full Transcript