Another example of a market failure, or a place where the market doesn't operate
the way that you would like it to in order to serve consumers, is price fixing.
Price fixing simply is a case where different people are selling a product in
the market and they just agree with each other that we're going to raise prices or
we're not going to lower prices.
Related to price fixing is an agreement not to compete,
where companies that would otherwise go into competition with each other
agree not to compete with each other.
For example, if there were two bakeries in town, they might agree that
one of them will only sell muffins and the other will only sell bagels.
And that way, there's less competition between them than there would be
if they both sold muffins and bagels.
As a result of the reduced competition, presumably, prices go up, and
the merchants are able to foil the operation of the market.
Because after all, the reason that the market protects consumers well in its
normal operation is through the vehicle of competition, that sellers have to
compete in order to offer the best goods at the best price to consumers.
And if they don't compete in that way then they won't get business.
So an agreement to fix prices, or an agreement not to compete,
circumvents that competition and prevents competition from operating in the market.
So another way that the market can fail is when people
takes steps that prevent competition.
These kinds of agreements, either an agreement to raise prices or
an agreement not to compete, these are illegal in most jurisdictions.
This is part of antitrust law or competition law.
In general, antitrust or competition law is aimed to prevent
cases where the market gets stuck
in a situation where there isn't enough competition to protect consumers.
Or cases where somebody acts in a deliberate way
to try to prevent someone from competing with them,
acting in a way other than simply offering good products at good prices.
Antitrust law is very complicated, I'm giving you sort of a sketch of it.
But this is another instance where we know that there are failures that can occur,
and where the law will step in to prevent, in the easy cases,
things like price fixing or agreement not to compete.
But in more difficult cases,
even some attempts to reduce competition in the market through, say, mergers or
other kinds of activity, another example where regulation might be helpful.