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Collusion is a relativistic term to refer to acts of cooperation or collaboration among rival entities, which, from a subjective point of view are considered to be undesirable. The term carries an intrinsic bias, has pejorative connotations, and thus is only usable from within the point of view of a particular party. In the study of economics and market competition, "collusion" takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market form of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole. Cartels are a special case of explicit collusion. Collusion which is not overt, on the other hand, is known as tacit collusion. According to game theory, the independence of suppliers forces prices to their minimum, increasing efficiency and decreasing the price determining ability of each individual firm. If one firm decreases its price, other firms will follow suit in order to maintain sales, and if one firm increases its price, its rivals are unlikely to follow, as their sales would only decrease. These rules are used as the basis of kinked-demand theory. If firms collude to increase prices as a cooperative, however, loss of sales is minimized as consumers lack alternative choices at lower prices. This benefits the colluding firms at the cost of efficiency to society. Practices that facilitate tacit collusion include: Collusion is largely illegal in the United States (as well as Canada and most of the EU) due to antitrust law, but implicit collusion in the form of price leadership and tacit understandings still takes place. Several recent examples of collusion in the United States include: There are many ways that implicit collusion tends to develop: There are significant barriers to collusion, however, under most circumstances. These include:
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