DECA+ Business Management and Administration Practice Exam

What does price fixing achieve in a marketplace?

1. Increases consumer choice

2. Encourages competition

3. Eliminates competition

4. Promotes fair pricing

The correct answer is: Eliminates competition

Price fixing primarily leads to the elimination of competition in a marketplace. This practice occurs when competing firms agree on the prices they will charge for goods or services, rather than allowing the free market to determine prices based on supply and demand. By setting the same prices, these firms create a barrier for new entrants and smaller businesses that cannot compete with the pricing strategies of larger, colluding firms. This lack of competition can result in higher prices and less innovation, as companies have less incentive to improve their products or services. In contrast, scenarios that increase consumer choice or encourage competition would typically involve a market where prices fluctuate due to competition among suppliers. Promoting fair pricing is also generally a goal of competitive markets, where prices reflect true market conditions rather than being artificially manipulated. Thus, price fixing stifles the essential dynamics of competition that would otherwise benefit consumers and the economy as a whole.