Collusion occurs when two or more parties that normally compete secretly decide to work together to gain an advantage. Cases of collusion are frequently illegal, since they are governed by antitrust laws. 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.

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.

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