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If It Ain't Broke . . .

Don't even try to fix prices with competitors.

To price any item or service, you need some idea of what the competition is charging. Otherwise, your price might be so high that no one will buy, or so low you can't make a profit. Why not just sit down with your competitors and agree on the same nice, fat price?

Do that, and you run afoul of the Sherman Anti-trust Act, which has prohibited price fixing in the United States since 1890. Designed to encourage healthy competition, the law forbids companies from entering "contracts, combinations or conspiracies" in restraint of trade. If customers or competitors suspect price fixing, they can file a complaint with the FTC. Violating the Sherman Anti-trust Act is a felony, subject to fines of up to $10 million or jail terms of up to three years. And injured customers or competitors can sue for up to three times their actual damages.

It's OK to engage in parallel pricing by reading ads or checking out prices. That's why gas stations in any town usually all charge about the same price. But station owners have gotten in trouble for notifying each other when to raise prices.

Manufacturers may also insist that their dealers sell for a particular price--as long as it's a unilateral requirement and the manufacturer doesn't debate the policy with its dealers.

So don't even discuss prices with competitors, and don't cut any deals.

Jane Easter Bahls is a writer in Rock Island, Illinois, specializing in business and legal topics.

This story appears in the June 2005 issue of Entrepreneur. Subscribe »