Tacit collusion

[7] A dataset of gasoline prices of BP, Caltex, Woolworths, Coles, and Gull from Perth gathered in the years 2001 to 2015 was used to show by statistical analysis the tacit collusion between these retailers.

The others will then follow suit, raising or lowering their prices by the same amount, with the understanding that greater profits result.

This practice can be harmful to consumers who, if the market power of the firm is used, can be forced to pay monopoly prices for goods that should be selling for only a little more than the cost of production.

Courts have held that no violation of the antitrust laws occurs where firms independently raise or lower prices, but that a violation can be shown when plus factors occur, such as firms being motivated to collude and taking actions against their own economic self-interests.

[15] Classical economic theory holds that Pareto efficiency is attained at a price equal to the incremental cost of producing additional units.

An oligopoly where each firm acts independently tends toward equilibrium at the ideal, but such covert cooperation as price leadership tends toward higher profitability for all, though it is an unstable arrangement.

In case of spectrum auctions, some sources claim that a tacit collusion is easily upset:[17]"It requires that all the bidders reach an implicit agreement about who should get what.

With thirty diverse bidders unable to communicate about strategy except through their bids, forming such unanimous agreement is difficult at best.

[21] Once the competitors are able to use algorithms to determine prices, a tacit collusion between them imposes a much higher danger.

[23] European Commissioner Margrethe Vestager mentioned an early example of algorithmic tacit collusion in her speech on "Algorithms and Collusion" on 16 March 2017, described as follows:[24] "A few years ago, two companies were selling a textbook called The Making of a Fly.

Self-learning AI algorithms might form a tacit collusion without the knowledge of their human programmers as result of the task to determine optimal prices in any market situation.

[22][26] Tacit collusion is best understood in the context of a duopoly and the concept of game theory (namely, Nash equilibrium).

A payoff matrix is presented with numbers given: Notice that Nash's equilibrium is set at both firms choosing an aggressive advertising strategy.