Price fixing is an illegal agreement between two or more parties to set or control prices, rather than allowing market competition to determine them. In franchising, price fixing typically refers to unlawful coordination of prices among franchisees or between franchisors and franchisees. It is a per se violation of antitrust law in most cases.
Price fixing in the context of franchising refers to any agreement—explicit or implied—that restricts the ability of franchisees or competitors to independently set their own prices for products or services. This includes horizontal price fixing (agreements between competing franchisees) and vertical price fixing (when a franchisor sets a fixed resale price for its franchisees). While franchisors can suggest retail prices or use minimum advertised pricing (MAP) policies, mandating exact resale prices or colluding with franchisees to maintain specific pricing is generally prohibited.
Under the Sherman Antitrust Act, price fixing is considered a per se violation of federal antitrust law, meaning it is inherently illegal regardless of intent or impact. For franchise systems, even well-intentioned efforts to maintain uniform pricing across locations can become problematic if they cross the line into coercion or collusion. Franchisors must be especially cautious when communicating pricing strategies to avoid triggering regulatory investigations or private lawsuits.
Additional Definition: A criminal violation of federal antitrust statues in which several competing businesses reach a secret agreement (conspiracy) to set prices for their products or prevent real competition and keep the public from benefiting from the competition. “Horizontal price fixing” among competitors at the same level of commerce (for example, two or more franchisees) is typically “per se” illegal. Under a series of decisions reached by the U.S. Supreme Court, parties such as franchisors are permitted to specify a maximum and a minimum resale price, which may still be reviewed under federal antitrust law under the “rule of reason” standard.
Learn more about franchising in The Educated Franchise - 3rd Edition
The concept of price fixing dates back to early 20th-century U.S. antitrust law and has long been considered one of the clearest violations of competitive market principles. In franchising, the issue gained prominence as brands expanded nationally and franchisors sought to maintain brand consistency, including pricing. High-profile lawsuits and FTC enforcement actions clarified that franchisors could suggest prices but not compel them, unless the franchise model involved company-owned operations or other legal exceptions.
Today, franchisors are advised to use language like “suggested retail price” and avoid policies that may appear coercive. Franchise agreements and operations manuals must be carefully worded to ensure compliance with antitrust standards while allowing brand consistency in other areas.
Price fixing is a serious legal violation in franchising, involving the unlawful control or agreement on prices between franchisors, franchisees, or competitors. While maintaining brand consistency is important, franchisors must respect the legal boundaries of pricing autonomy to avoid price fixing claims and ensure compliance with antitrust laws.
