Collusion

Published Dec 27, 2022

Definition of Collusion

Collusion is defined as an agreement between two or more parties to limit open competition by deceiving, misleading, or defrauding others of their legal rights. That means it is a form of anti-competitive behavior in which companies cooperate with each other to gain an unfair advantage over their competitors.

Example

To illustrate this, let’s look at an example of collusion between two companies, A and B. Both companies produce the same type of product and compete in the same market. To gain an advantage over their competitors, they agree to fix prices and divide the market between them. That way, they can both charge higher prices and make more money than if they had to compete in an open market.

Why Collusion Matters

Collusion is a serious issue in many markets, as it can lead to higher prices, reduced quality, and fewer choices for consumers. It also reduces the incentive for companies to innovate and invest in research and development. That’s why it is illegal in many countries and can lead to hefty fines and even jail time for those involved.

On the other hand, collusion could theoretically also be beneficial in certain cases. For example, it could help small companies to compete with larger ones by forming a cartel. That way, they can gain more bargaining power and increase their profits. However, this is still considered illegal in most countries and should be avoided.