Smith writes, ‘The exclusive privileges of corporations, statutes of apprenticeship, and all those laws which restrain the competition to a smaller number than might otherwise go into them, have the same tendency.’ Just because a business doesn’t look like a monopoly from the outside doesn’t mean that it’s not.
The result of these restrictive practices is that competition in a particular area is kept low to create, ‘enlarged monopolies [that] may frequently, for ages together, and in whole classes of employment, keep up the market price of particular commodities above the natural price’. In other words, price fixing!
DEFINING IDEA…
Like many businessmen of genius he learned that free competition was wasteful, monopoly efficient. And so he simply set about achieving that efficient monopoly.
~ MARIO PUZO, AUTHOR OF THE GODFATHER
The airline industry has been dogged with price-fixing scandals. In August 2007, in a joint investigation by the Office of Fair Trading and the US Department of Justice, British Airways was shamed as ‘conspirator’ and fined £270 million for its role in a price-fixing cartel. Virgin Atlantic avoided a fine after it exposed the scheme. Both BA and Virgin Atlantic also settled a £100 million class-action lawsuit brought on behalf of passengers angry at overcharges because of the cartel.
In November 2007 Qantas was fined $61 million in the US, while in October 2008 the airline was fined a further $20 million by the Australian Competition and Consumer Commission (ACCC). BA was also fined another $5 million by the ACCC. Although BA seems to be consistently involved in price-fixing scandals they are not alone. Japan Airlines and Korean Air Lines have also been charged for keeping the market price, ‘above the natural price’.
One of the most infamous examples of price-fixing was uncovered with the collapse of Enron. Kenneth Lay wanted to create an ‘Energy Bank’. Friends in high places, such as George W. Bush, helped make it possible. By the end of 2000 Enron controlled a quarter of the US natural gas business. In tapes made public in 2004, Enron traders can be heard asking the El Paso Electric Company to shut down production in order to manipulate the price. In just six months California experienced thirty-eight rolling blackouts no doubt caused by the same deliberate manipulation.
Smith warns us that, ‘such enhancements of the market price may last as long as the regulation of police which give occasion to them’. Enron, for one, did get caught but it was much too late for many. By the time vice president Sherron Watkins blew the whistle on Enron, it was too late to save thousands of jobs and innocent investors. Money was siphoned off before the collapse and those involved went on to infect the entire financial system. Political lobbying or, as it should be called, legalised bribery still goes on, vested interests lead to corruption as surely as night follows day.
HERE’S AN IDEA FOR YOU…
Price fixing is illegal, but differentiating yourself so that you stand head and shoulders above the competition is not. If you want to stand out, consider guaranteeing your product or service with an extraordinary guarantee. This demonstrates that you have faith in your own business and can help potential customers over the line as it allows them to feel secure in their choice.