Collusion

Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading or defrauding others of their legal right.

[1] It can involve "unions, wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties".

[3] In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit.

Because of this harm to consumers, it is against antitrust laws to fix prices by agreement between producers, so participants must keep it a secret.

On the other hand, tacit collusion is where companies coordinate and monitor their behavior without direct communication.

Collusion results from less competition through mutual understanding, where competitors can independently set prices and market share.

Even if conversations between multiple companies are illegal but not enforceable, the incentives to comply with collusive agreements are the same with and without communication.

Even without communication, businesses can coordinate prices by observation, but from a legal standpoint, this tacit handling leaves no evidence.

Adam Smith in The Wealth of Nations explains that since the masters (business owners) are fewer in number, it is easier to collude to serve common interests among those involved, such as maintaining low wages, whilst it is difficult for the labour to coordinate to protect their interests due to their vast numbers.

Nevertheless, according to Adam Smith, the public rarely hears about coordination and collaborations that occur between business owners as it takes place in informal settings.

If and only if the profit of choosing to deviate is greater than that of sticking to collude, i.e. As the number of firms in the market increases, so does the factor of the minimum discount required for collusion to succeed.

Fortunately, various forms of government intervention can be taken to reduce collusion among firms and promote natural market competition.