Collusion

Future collusive profits

Set higher prices

Collusion is a secret or illegal cooperation or conspiracy, especially in order to cheat or deceive others. The term is most commonly used in the context of business, law, and economics, where it refers to practices that subvert competition or violate antitrust laws. Collusion can take many forms, including price fixing, bid rigging, and market allocation agreements among competitors. It is considered harmful to the free market and consumer interests because it leads to higher prices, reduced quality, and less innovation.

Overview

Collusion is an agreement between two or more parties, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair market advantage. It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities. It can involve "wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties." In legal terms, all acts affected by collusion are considered void.

Types of Collusion

Price Fixing

Price fixing occurs when competing companies agree on pricing strategies rather than allowing the market to set prices naturally. This can lead to artificially high prices that harm consumers.

Bid Rigging

Bid rigging is a form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid.

Market Allocation

Market allocation schemes involve competitors agreeing to divide markets among themselves, either by geography, by customer type, or by product type, thereby reducing competition.

Detection and Regulation

Detecting collusion can be difficult, as it is often conducted in secret. Regulatory bodies, such as the United States Department of Justice's Antitrust Division or the European Commission's Directorate-General for Competition, use a variety of tools to detect and investigate collusion, including economic analysis, whistleblowers, and leniency programs for participants who come forward.

Legal Consequences

The legal consequences of collusion can be severe, including fines, imprisonment for individuals involved, and damages awarded to affected parties. In many jurisdictions, antitrust laws are enforced to prevent collusion and maintain market competition.

Ethical Considerations

Beyond legal implications, collusion raises significant ethical concerns. It undermines the principles of fair competition and can lead to corruption, erode trust in markets, and disadvantage consumers and honest competitors alike.

See Also

• Antitrust Law
• Competition Law
• Monopoly
• Oligopoly
• Cartel