Manipulation of price: Overview, definition, and example
What is manipulation of price?
Manipulation of price refers to any deliberate action taken to artificially influence the price of goods, services, securities, or commodities in a way that distorts fair market value. This can include tactics such as price fixing, misleading pricing strategies, insider trading, or creating false supply and demand.
For example, in financial markets, a company might inflate its stock price by spreading false information to attract investors. Similarly, in a supply contract, two competing suppliers might secretly agree to set high prices, eliminating fair competition.
Why is manipulation of price important?
Preventing price manipulation is crucial for ensuring fair competition, market integrity, and consumer protection. Artificially inflating or deflating prices can harm businesses, investors, and consumers by creating an unfair market environment.
For businesses, including an anti-price manipulation clause in contracts helps protect against unfair pricing practices and ensures compliance with competition laws. Regulatory authorities impose heavy penalties on companies engaging in price manipulation, making it essential to establish safeguards.
Understanding manipulation of price through an example
Imagine two major suppliers of raw materials secretly agree to raise their prices, forcing buyers to pay more than the fair market rate. This price-fixing scheme harms businesses that rely on these materials and violates antitrust laws.
In another scenario, a stock trader spreads false rumors about a company’s earnings to drive up the stock price. Once the price rises, the trader sells their shares for a profit, leaving misled investors with overpriced stocks that later drop in value.
An example of a manipulation of price clause
Here’s how a manipulation of price clause might appear in a contract:
“Neither Party shall engage in any form of price manipulation, including but not limited to price fixing, artificially inflating or deflating prices, or engaging in deceptive pricing practices. Any violation of this provision shall constitute a material breach of this Agreement and may result in termination and legal action.”
Conclusion
Manipulation of price distorts fair market practices, harms competition, and can lead to legal and financial consequences. Preventing price manipulation ensures transparent pricing, protects businesses and consumers, and upholds market integrity.
By including an anti-price manipulation clause in contracts, businesses can safeguard against unethical pricing tactics, comply with competition laws, and maintain fair trading practices.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.