FTC warns eight duty-free shops accused of price-fixing
Eight Korean duty free shops are in hot water for price fixing by manipulating their foreign exchange rates.
The Fair Trade Commission says the eight duty-free shops owned by major companies, including Lotte and Shilla, colluded for five years to charge customers above-market prices by fixing foreign exchange rates on local products.
The antitrust body issued a correction order for all eight shops, which is similar to a warning that halts the activity in question.
The companies say they applied their own exchange rates because of day-to-day exchange rate fluctuations that affected prices, becoming too much of an inconvenience for them and their customers.
The investigation revealed that during the sixty-three month period between 2007 and 2012, the shops made profits about 60-percent of the time from the exchange rate fixes.
There are 5 characteristics of Oligopoly. 1. Only few firms operate in the market (Small numbers of large firms). 2. They produce homogeneous products or different products. 3. There are significant entry barriers to exist. 4. They are aware of the presence of the others. The last characteristic is that there are interdependence among the firms, the actions of each one affect all. And price fixing means that they agree to each other to use same price for a certain product.
Korean Duty shops are in the market structure of Oligopoly. And they were warned by FTC, because they did price-fixing. Those major duty free brands collude with each other for 5 years to charge customers above-market prices.
Firms collude with each other because of the interdependence of firms in oligopoly. They usually predict the actions of rival firms, and to base its own actions on how it expects its rivals to behave. They predict each other because they want to compete with each other for the purpose of capturing part of their rival firm’s market share. And these competition can lead the firms to have a price war. And oligopoly companies wants to avoid price war. Therefore, they make an agreement ti fix prices and share the market between themselves so as to limit competition between them.
However, FTC warns them because the fixed price was way too high for the consumers. Oligopoly firms usually act like a monopoly firm, therefore, they usually have a great power to choose the price. The elasticity of the products that the duty free brands are selling is inelastic, therefore, consumers have to accept the price that the firms gave. The duty shops charged above the market price. And as the result, consumers will have to pay the same product in a higher price.