What is Collusion?
Collusion happens when businesses or people work together secretly to control prices or markets, without writing anything down. Companies that should compete against each other instead team up to make more money by hurting their customers. They might raise prices together, limit how much they make, or divide up who gets to sell where.
How Collusion Works
Companies that collude talk and coordinate behind closed doors. They watch each other’s moves and copy what others do with prices or business choices. A gas station might raise its prices, knowing nearby stations will do the same thing. Banks could secretly agree to offer the same low interest rates on savings accounts. Movie theaters in a city might all charge exactly the same ticket prices.
Common Types of Collusion
Price Fixing
Price fixing is the most well-known type of collusion. Companies agree to charge similar prices instead of competing. They meet in secret or send signals to each other about price changes. When one company raises prices, others quickly follow. This keeps prices high and stops real competition.
Market Division
Companies sometimes split up markets between themselves. One company might take the north side of town, another the south side. Or they divide customers into groups – one handles big orders, another takes small ones. This way they don’t have to compete for the same customers.
Bid Rigging
In bid rigging, companies take turns winning contracts. They pretend to compete but actually work together. One company submits a low bid and others purposely bid higher. Next time, they switch who wins. This often happens with government contracts and construction projects.
Output Restriction
Companies agree to make less of something to drive up prices. Farmers might destroy crops or oil companies might pump less oil. When there’s less of something available, people pay more for it.
Signs of Collusion
Price Patterns
When competing companies change prices at the exact same time and amount, collusion might be happening. Prices stay unusually steady or change together in ways that don’t make sense with normal business costs.
Market Behavior
Companies that should compete start acting strangely similar. They might offer identical services or stop trying to steal customers from each other. Their advertising and business plans look nearly the same.
Industry Meetings
Business rivals meet often but won’t say what they discuss. They have many private gatherings or belong to trade groups that could hide secret talks about prices and markets.
Why Collusion is Bad
Higher Prices
Customers pay more than they should because companies aren’t really competing. Prices stay high even when costs go down. People have fewer choices about where to buy things.
Less Innovation
Companies don’t need to improve their products or create new ones when they collude. They make enough money by keeping prices high. This slows down new ideas and better ways of doing things.
Economic Damage
The whole economy suffers from collusion. Money that could help grow businesses instead goes to companies that cheat the system. New companies can’t break into markets controlled by colluding businesses.
Laws Against Collusion
Antitrust Rules
Many countries have laws that make collusion illegal. These started in the United States with the Sherman Antitrust Act in 1890. The laws say companies must compete fairly and can’t work together to control markets.
Enforcement
Government agencies watch for signs of collusion. They investigate suspicious behavior and take companies to court. Companies caught colluding pay big fines and sometimes their leaders go to jail.
Whistleblower Programs
People who report collusion can get rewards. Companies involved in collusion might confess to get lighter punishments. This helps break up collusion schemes and catch more companies breaking the law.
Famous Collusion Cases
Vitamin Companies
In the 1990s, the biggest vitamin makers colluded for nine years. They controlled 80% of the market and made billions in extra profit. When caught, they paid over $900 million in fines.
Airlines Price Fixing
Major airlines colluded on fuel surcharges and cargo rates. Between 2000 and 2006, they overcharged customers billions of dollars. Many airlines paid huge fines in different countries.
LCD Screen Manufacturers
Companies making LCD screens for computers and TVs fixed prices for nearly ten years. They met in secret and called themselves the “Crystal Group.” Their scheme cost buyers billions before they got caught.
Preventing Collusion
Market Monitoring
Governments track prices and business behavior for signs of collusion. They analyze data to spot suspicious patterns. Industry experts watch for companies acting too friendly with competitors.
Strong Penalties
Heavy fines and jail time discourage collusion. Companies think twice about cheating when punishment gets serious. Leaders know they might personally face criminal charges.
Competition Rules
Clear rules tell companies what they can and can’t do. Laws require real competition and ban secret agreements. Regulators check that companies follow these rules.
Modern Collusion Challenges
Digital Markets
Online businesses find new ways to collude using computers and data. Pricing software might help companies coordinate without talking directly. This makes collusion harder to spot and stop.
Global Commerce
Companies work across many countries now. This makes catching collusion more difficult. Different laws in different places create gaps colluding companies can use.
Industry Changes
New kinds of businesses create new ways to collude. Technology companies might collude on data collection or app store rules. Traditional anti-collusion laws sometimes struggle to keep up.
Impact on Society
Collusion hurts everyone except the cheating companies. Poor people suffer most because they can’t afford inflated prices. Communities lose jobs and growth when competition dies. Trust in business and markets breaks down when collusion schemes come to light.
