What illegal activity occurs when competitors agree to set prices?

The correct answer is price fixing, which refers to an illegal agreement between competitors to establish the same price for their goods or services, eliminating competition. This practice harms consumers by preventing them from benefiting from lower prices that would typically result from competitive market dynamics. When companies agree on prices, they effectively manipulate the market, leading to artificially high prices and reduced choice for consumers.

Price fixing is a violation of antitrust laws because it undermines the principle of free competition. By setting prices together, the competitors create a monopoly-like environment where they can avoid competing against each other, ultimately reducing the market's efficiency and harming consumers. This behavior is prosecuted to maintain a fair marketplace where consumers have access to varied prices and products driven by competition.

While market allocation involves competitors agreeing to divide markets or territories to avoid competition, and bid rigging refers to the manipulation of bidding processes, price fixing directly involves the explicit agreement on prices among competitors. Collusion is a broader term that can encompass various forms of anti-competitive behavior but specifically refers to the secret or illegal cooperation among parties, of which price fixing is a specific example.