Final answer:
The correct answer is E) Horizontal; vertical. Horizontal price fixing is when competing firms control prices, often as a cartel, while vertical price fixing occurs within the supply chain. Both practices are generally prohibited by antitrust laws due to their anticompetitive nature.
Step-by-step explanation:
The student's question pertains to types of price fixing. Horizontal price fixing occurs when competitors collude to control prices, which is often undertaken by a cartel. A cartel is a group of firms that agree to collaborate instead of competing, acting more like a monopoly, to manage output and prices. Vertical price fixing involves collusion within a marketing channel to manage the prices passed on to consumers. Examples of this could include manufacturers and retailers agreeing on retail prices.
Under a cartel arrangement, the firms agree on a price to charge that's typically higher than under competitive conditions and restrict output to maintain that price, splitting the resulting profits among themselves. However, if the cartel breaks up and firms enter into cutthroat competition, they are likely to reduce prices to attract more customers and increase output, which can lead to an overall reduction in industry profits compared to the cartel arrangement.
Antitrust authorities often intervene to prevent collusive behaviors like horizontal and vertical price fixing since it reduces competition in the market. Despite these measures, firms sometimes engage in practices that indirectly lead to similar effects, such as bundling or predatory pricing.