Collusion definition
/What is Collusion?
Collusion occurs when two or more parties that normally compete secretly decide to work together to gain an advantage. The general approach is to either restrict supplies of goods in order to drive up prices or to set artificially high prices. Cases of collusion are frequently illegal, since they are governed by antitrust laws. The outcome of collusion is that the consumer ends up paying higher prices than would have been the case if there had been a heightened level of competition.
Collusion is difficult to coordinate if there are many competitors in a marketplace. Consequently, it is most commonly found in oligopoly situations where there are only a few competitors, or where just a few competitors have most of the market share.
Indicators of Collusion
There are a number of indicators that collusion may be present. One example is when prices are set by a group of suppliers at a uniformly high or low level. Another indicator is when suppliers refuse to sell in each other’s territories, thereby effectively creating regional monopolies. Yet another indicator is when some suppliers routinely refuse to bid in competitive bidding situations, which allows the remaining bidder to bid at an unusually high price.
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Examples of Collusion
Examples of collusion are:
Several high tech firms agree not to hire each other's employees, thereby keeping the cost of labor down.
Several high end watch companies agree to restrict their output into the market in order to keep prices high.
Several airlines agree not to offer routes in each other's markets, thereby restricting supply and keeping prices high.
Several investment banks decide not to bid on certain deals with clients, thereby reducing the number of bids and keeping prices high.