Headphones manufacturer Sennheiser is the latest company to get busted for price fixing. What is it and how does it keep price tags artificially high?
Tariffs aren’t the only things driving up prices for consumers. Another factor is price fixing. Although illegal, it’s surprisingly common, with headphone giant Sennheiser only the latest in a long line of famous manufacturers to get pinched for artificially inflating product prices. But what exactly is price fixing, and how does it affect you as a consumer?
What Is Price Fixing?
Price fixing is when participants on the same side of the market collude to keep prices set in some way rather than let them fluctuate naturally according to market forces. This can be done across manufacturers or businesses, as with the Tokyo hotels that were recently warned against sharing information and possibly agreeing on room rates, or vertically between a manufacturer and retail agents.
Price fixing can be done to keep prices inflated and increase profits for some or all participants in the conspiracy, protect the business interests of parties involved or even to prevent damaging consumer confidence by setting minimums for prices.
Why Is Price Fixing Illegal?
Sometimes called retail price maintenance, price fixing is considered a crime because it circumvents the free market, undermines competition, slows down innovation and - most importantly - harms consumers with higher prices.
According to the American Federal Trade Commission, “antitrust laws require that each company establish prices and other competitive terms on its own, without agreeing with a competitor.” Governments tend to take price fixing very seriously. Although each country has its own rules, in general, companies and individuals who break antitrust laws can be criminally prosecuted with both fines and jail time a very real possibility.
What Did Sennheiser Do?
Sennheiser was recently slapped with a €6 million fine by the Bundeskartellamt, Germany’s Federal Cartel Office, for engaging in price fixing from 2015 until 2022. And this even includes a roughly six-month period after Swiss Hearing aid company Sonova purchased Sennheiser in which the practice was allowed to continue.
According to the German office’s findings, Sennheiser/Sonova engaged in deliberate and concerted efforts to get retailers to raise prices on “premium headphones” that it found had fallen below its MSRP (Manufacturer’s Suggested Retail Price), preventing discounting across the board. The company apparently used consumer comparison websites and specialized software to keep track of this, and spoke in code during internal communications. It even made use of information gleaned during corporate antitrust training exercises to better carry out its price fixing.
"When it comes to illegal cartels, what first comes to mind are agreements at the same market level, for example between manufacturers or between retailers,” said Andreas Mundt, President of the Bundeskartellamt, in a press release. “However, price competition is also significantly hindered to the detriment of consumers if manufacturers and their retailers conclude agreements on fixed retail prices. Over a l